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It's effective, also on longer time frames there will be fewer differences in the bar shapes due to timing differences and data feeds, so it more likely that everyone is looking at the same thing. Most of my swing trades are based upon inside bars and pin bars using a daily time frame, primarily because it works and it's easy to administer. I run through 21 different pairs and CL in less than 30 minutes a day. When trading currencies, just be sure to consider correlation between the pairs when calculating your risk. A lot of people use a 4-hour chart also.
I also key off them in my day trading, but honestly it never even occurred to me that simply bracketing every inside bar during high volume periods could be an effective strategy on such a short time frame. I usually apply discretionary filters because if an inside bar forms close to the ema 20, it will some times make a move toward the ema 20 before shooting away, i.e. in an icon type move. Also, at the point of trend exhaustion or at a lower high or higher low, it will sometimes move as if it's going to take another crack at the recent high or low, but then turn the other way. But's it's harder to read on shorter time frames and maybe it doing me more harm than good when scalping, i.e. its taking me out of more good trades than bad ones. I am gonna have to take a look at it.
If we refer to the INSIDE BAR, OUTSIDE BAR and REVERSAL BAR as bullish or bearish, does this imply/influence the direction/nature of our trade entries ? For example, if I get a bearish INSIDE BAR, do I SHORT/SELL ?
Have a look at Silvester17's chart below, you will note that all the three reversals in his chart have this bearish/bullish qualifications.
That's what I was trying to address the prior post. If you try to read the charts, you would hit 2/3 right? But by taking every signal you would hit 3/4. So in the long run which is better? To know, you would have to figure the number of trades and percentages of your filtered method compared to the number of trades and percentages of simply taking every signal.
for me all the 3 setups (inside, outside and reversal bar) are trend reversal trades. so yes to your question. after a move up, I want to see a bearish inside, outside or reversal bar with increased volume in order to go SHORT.
Almost missed checking with you. Do you have an Inside Bar strategy that can trigger a pair of OCO Buy and Sell Stop orders? If yes, I will try to find out how to combine the existing separate Long/Short strategies into one. 100% auto will be better than a semi-auto one LOL!
Yeah, it would be nice to run a few different variations in sim on a few different instruments and time frames. Maybe we could split it up to make it easier.
If it was just that easy to trade inside bars, we would all be rich. There is a guy, however, who is a multi-millionaire and has a couple of billions under management, so maybe it is a good idea to look at his approach.
A complete approach inludes:
(1) a setup ( the inside bar is the setup bar)
(2) a filter to increase the edge
(3) a trigger bar to enter the trade
(4) an initial stop to exit the trade at a loss
(5) a target and/or a trailing stop to exit the trade at a profit
Once you have put this together, you would be ready to backtest. It is not my intention to do this here, but I want to have a look at the approach put forward by Tony Crabel in 1990. I just saw that there is one new copy of his book left at Amazon, selling for USD 1,293.18 - go and buy it.
(1) Setup
Toby Crabel uses two types of bars
- IDnr4 bars: inside bars that are narrow range 4 bars ( range of NR4 must be smallest of last four bars)
- NR7 bars: narrow range 7 bars (range of NR7 must be smallest of last 7 bars)
He originally used these on a daily chart to trade opening range breakouts (ORB).
(2) Filter
In a strongly trending market, Crabel has a preference for a breakout in the direction of the trend. He calls this opening range breakout preference (ORBP). So he will only take the trade, if the breakout occurs in his preferred direction. I also use volume analysis and Keltner Channels to avoid Greater Fool Trades. Either trading inside out or outside in.
(3) For the trigger bar Crabel uses a volatiliy measure called the stretch. The stretch is calculated by taking the 10 period SMA of the absolute difference between the Open and either the High or Low, whichever difference is smaller. Crabel himself changed this approach later, but used a volatiliy measure for the trigger anyhow. The idea is old. The inside bar stands for a trading range. You only want to take the breakout, if an increase in volatility has sent price further away than the stretch. You should directly take the breakout, and not wait for a retracement to the high of the trading range.
(4) and (5) Still need to add the targets and stops. Any suggestions?
Here are two links to articles Crabel has published with TASC magazine. Compared to the book it has reduced contents, but summarizes his approach.
