(1) The range of this inside bar was too large. It was not a NR 4 bar, so I did not take it.
(2) The preferred breakout was to the upside, this would have been a second entry sitting on the lower band of the Keltner Channel. The breakout from the inside bar occured to the downside, so I did not take it. The bar after this inside bar is a reversal and a churn bar. So I entered long 1 tick above the churn bar, which is midrange of the inside bar.
(3) The third inside bar shows balancing action after a strong candle up. Note that the body of this inside bar is above the body of the candle up. This means that the new price has been confirmed. As I already was long from the entry above the churn bar, I only used this inside bar to adjust the stop loss just two ticks below this bar.
There were two consecutive bullish Gartley patterns on the 15 min chart. The first one had already produced a bullish breakout during the night session.
During the consolidation pattern in the morning, a double inside bar developped, sitting on the trendline. The breakout occured to the upside, as expected. This was a fast and easy trade. I am still holding the second half of my position.
I remember that a similar case has already been observed by somebody else on this thread.
The inside bar on the hourly chart developped as well, but it broke out to the upside by a few ticks 2 minutes prior to its completion, so it never materiliazed. This is very bullish.
A breakout from a 5 min chart triggers a breakout on the 15 min chart. Then the breakout from the 15 min chart triggers a breakout on the 60 min chart. In the end this can lead to a large move over several days. If I only I had the patience to let the profits run....
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I believe there is no edge in just trading insíde bars.
If this was possible, we all would become rich, quickly. Many guys who are a lot smarter than we are, would have discovered this long ago, and according to the efficient market hypothesis, any edge would have disappeared as a consequence of their trading.
However, I like inside bars, because they provide for low risk entries, at least if they are narrow range bars. So here comes my first modification, I only take inside bars that are NR4 bars as well. I admit that I stole this idea from Toby Crabel. I also trade all NR7 bars in the same way as inside bars.
Next I need a set of filters, to keep me away from false breakouts. I remember that I had tried to trade squeezes, as described in the book by John F. Carter, some time ago. After the breakout from the consolidation I was trapped as often as I was successful, so the concept as such did not work for me.
So these are my filters for trading inside bars
- at least NR 4
- higher timeframe analysis (trend and pattern) to establish breakout preference
- bar and range analysis (locaction of the bar compared to prior bar and last expansion bar)
- volume analysis (climax and churn volume)
- establishing support and resistance (prior lows and highs, floor pivots, fib lines, trend and trend channel lines)
I do not think it is wise to a set a fixed profit target of x ticks without looking at the chart. I am also not using a money management stop, but select a stop loss, which invalidates the trade idea, when hit. Of course, the actual stop needs to be smaller than the calculated money management stop.
The reward-to-risk ratio should be at least 1:1 for my first target. To establish the first target, I need to look at support (short setup) or resistance (long setup). My stop-loss is x ticks above or below the inside bar. My total risk therefore amounts to the range of the inside bar + 2 (x + slippage). This needs to be smaller than the distance from my sell stop (short) or buy stop (long) to the profit target.
Or to put in simple words: I want that the profit side of my bracket order is larger than the loss side, otherwise I won't take the trade.
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