Inside Bar Trading Technique

Hello,

Welcome to the Inside Bar Trading Technique (IB).

I like this technique because it allows me to be ready for any direction that the market moves which is a good thing as I am completely unable to predict with any cetainty where the market os going to move to next.

With certainty, I am able to tell you that using this tehnique will allow you to quit caring which direction the market moves so that you can feel at ease while trading.

Please note that I am not an expert at this technique and am still trying to get my MM strategy down, so any input that anyone would like to share would be greatly appreciated.

Here is what you will need for tools:

Indicators

1. SHI_SilverTrendingSignal - Attached below

This indicator is used to determine the trend. Early on we used to place trades above and below an inside bar. With the help of this indicator we will only place trades in direction of the trend. When the dot closes above a bar, we only place short trade orders and when a dot closes below a bar we only place long orders. All settings for this indicator are defualt except you may want to change the colors of the dots as to me they are backwards. Because this indicator can be wrong and will repaint itself, you should get confirmation of the trend using the Awesome Oscillator as described below.

2. Awesome Oscillator (AO) by Bill Williams: You should use this indicator as a confirmation of the trend. Before considering any short trades, make sure that #1 has occured and that the AO has also closed as a red bar. Before considering any long trades, make sure that #1 has occured and that the AO has also closed as a green bar. During a long trending trade, the AO will likely switch colors any number of times, but this will mean nothing unless it is accompanied by #1 above.

When both 1 & 2 above have occured, then you will only place inside bar trades in the direction of the trend.

3. I love Bill Williams 'Alligator' up on the chart and I am starting to see how price can react in relation to this indicator. I think that this indicator is a great one to have on your screen at all times and really has no bearing with this current technique.

Charts

Daily

Take Profit Targets

This section has changed since deciding to add only trading in the trend direction. As I am trying to find the best T/P stratedy, it may be edited some more as well.

Place your order with the trend as above.

Basically you should be planning to keep this position open until you get a reversal signal. For now, I think that reversal signal should be the formation of a Silver Trend dot appearing on the close of a bar to signal a possible revesal is about to happen. Then you would set your exit postion at the High or Low of this bar (depending on the direction of your current trade). this will give your trade a chance to stay with the trend if it will.

One thing to remember is that just because your trades closed, you will not consider placng a trade in the opposite direction until both 1 & 2 above have been satisfied. On the flip side, even though your trades closed out, and until you get a complete reversal signal, you should still consider placing any new trades in the direction of the current trend incase of reversal.

The excetion to this rule is that if you have a trade with little profit or a small loss, you may want to close this particular trade out at the formation of the dot and not wait for it to hit the high or low which could close you out for a higher loss. Any trades that will still be clearly in profit if your new exit target is hit should be left to hit that exit target.

What is an inside bar?

An inside bar is a bar when at it's close has a high that is < yesterday's high and a low that is > yesterday's low.

The concept here is that the market has to go somewhere after the formation of a inside bar. It is either going to go higher, lower or bounce around for a bit longer. Are goal is to take minimal losses or break even while we remain in position to catch the trend when it finally happens.

Pairs

This will work with all pairs, just be sure to risk less with a pair that has more movement and will offer you a larger initial S/L

Goals

To capture the long runs on the daily charts

Entry

Wait for the next inside bar to form and place either a buy stop 1 pip + spread above the high of that bar or a sell stop 1 pip below the low of that bar. You will only place these orders in the direction of the determined trend as described above using the SHI_SilverTrendIndicator and the AO.

Leave these orders ready open until a a new inside bar is formed and then change your orders to accomadate for this new inside bar or as long as the new inside bar also is pointing in the same direction, you could consider leaving both trades as pending orders since you will now be trading them with the trend. If the trend changes and your bar did not trigger, close all pending orders.

Hard Stop

There are a few strategies to work with here.

1. Use a hard stop of 100 pips

2. Use the ATR to determine your initial stop only or 2x ATR

3. Place your stop at the opposite side of the inside bar.

And remember that if you are stopped out you should replace your order on the next day if your position and trend direction will allow you to do so.

Multiple Inside Bars

You should consider using all inside bars that form as long as you only set pending orders in the direction of the trend.

Money Management

I no longer look at the Forex Market as "Get Rich Quick". I prefer to start small, build it up and get comfortable knowing that I can take a profit when the money starts to compound. Also, because I end up placing multiple orders in the same direction using my complete system I need to keep my lot sizes small.

I suggest using .25 mini lots for any 10K in equity. Then add .01 lots for every $400 in increased equity. This may not seem like a lot, and if you are just trading the IBT then it might not be, but with all the trades I enter, .25 mini lots can = 5 to 8 lots by the time it is all said and done.

What if I am stopped out?

If you are stopped out, reset your orders based on the most current inside bar which could be the one you just stopped out from. If a new inside bar has formed, use these new settings for entry, take proft and exiting and delete all orders from the previous bar. It is also safe to say that you may only be able to set one side of the IB at a time if you are above or below the actual bar itself. This is okay. Just make sure to remember to set the other side of the bar when the first side is hit so you are ready for a reversal.

Sunday's Data

If you are using software that charts a bar for Sunday night, add this to Monday's bar and compare this combination to Friday's close. If Sunday opens outside the relm of a formed you can place a market order if it is not too far away from where you would have entered any way.

I will add to this any changes as long as I can.

Best too all in 2008!

Damon



Books to read by Bill Williams:

Trading Chaos
New Trading Dimensions

Here are the trades that would be placed at the open of the market on Sunday night. Please remember that if the market opens beyond these parameters that we will stand aside.

EUR/USD

Buy Stop at 1.4698 with a hard stop at 1.4602

Sell Stop at 1.4602 with a hard stop at 1.4698

USD/JPY

Buy Stop at 107.62 with a stop loss of 100 pips

Sell Stop at 106.36 with a stop loss of 100 pips

USD/CHF

Buy Stop at 1.1069 with a hard stop at 1.0980

Sell Stop at 1.0980 with a hard stop at 1.1069

USD/CAD

Buy Stop at 1.0311 with a hard stop at 1.0212

Sell Stop at 1.0212 with a hard stop at 1.0311

I will try to follow up with these trades as they progress as well as add any new ones that form, but I evealuate my trades about 2-3 hours every night based upon my different entry, exit and take profit techniques, plus time with family and other endevours, so I may not make it every night. And remember that your entries may differ because of spread and platform charting.

Cheers,

Damon

On your earlier post I was a little confused as to what you meant by inside bar. Would you mind elaborating?

An inside bar is a bar when at it's close has a high that is < yesterday's high and a low that is > yesterday's low.

What this means is that for an inside bar to be valid it must not extend beyond the high low realms of the previous bar. Just like you are inside a house as opposed to outside a house.

If you consider the high and low of the previous bar the doors to your house. if the current bar does not extend through these doors to the high side or the low side in either direction, then you would have an inside bar. An equal reading to the high or low side means the that you have one foot in and one foot out and in theory is not an inside bar.

The opposite would be true if the current bar extended past the doors of the previous bar in both directions you would have an outside bar which also has trading implications of which you can learn from reading books and trading.

Hope this is a better explantion.

your response was much appreciated. The funny thing is that I've had an idea regarding daily opens and prices relation to this level.

Here's a screen of my charts and I've circled what I believe are inside bars.

I've noticed that the daily opens are good for support and resistance too

Which broker do you use for the prices above? Thanks

mjotic-

It is hard to tell what the circles are exactly pointing at. It may be better if you could use arrows to show the specific bar you are talking about. Then I could answer you better.

I will also try to upload some charts, but have had enough computer for the day.

Damon

aelimian -

I use interbankfx.com

sorry that i wasn't more clear in the last post.

Here is a char with 1 hour candles

the dotted lines are daily opens

the blue and red boxes represent the high and low for that day


I have redone the chart that I posted. Are these valid inside bars?

I am not sure I am following you. It looks as if some of your positions are not right. If you are using the hourly chart, then you wouldn't need yesterdays high/low. You would need the high and low of the previous bar on the hourly chart.

I have not looked at using the daily highs/lows and then switching to the hourly chart for entries.

What ever chart you are on for the previous bar high/low I suggest you stay on that chart to find the inside bar. As I don't want to trade the hourly chart, the daily chart works best for me. Maybe you have found something, but according to my explanation things are not right and the areas you have highlighted may not be correct using the hourly previous bar to find an hourly inside bar.

Hope this clears things up a little.

Damon

MJotic,
i think you don't get Damon's idea at all. Maybe you're confusing yourself with Pivot points, using yesterday's High, low and Close to determine today's intraday trading range ? Not exactly the same thing as Damon's breakout strategy. I suggest you read his explanations again; carefully .....

the most recent bar on this daily chart is an "inside bar" since it's high and low does not extend out past the high/low of the previous day.
So the strategy, based on the expectation of the resumption of volatility, is to place Buy Stop and Sell Stop orders just outside the range of the most recent bar; in order to jump on the breakout from this minor consolidation.

You are right.

I am uploading a chart now and will put some explanations in it, so it may take a while, but you definietly have the right idea.

sorry for interrupting your thread. It's not a system or method I use much myself to be honest, but I was getting frustrated with MJ's apparent inability to grasp the concept.
Good luck with your system, hope it works out for you.

It is no problem, thanks for your help.

I'm still struggling with trying to upload an immage.

Amazing what one clear chart and a simple, well articulated paragraph can accomplish. Thanks, rathcoole.

thanks Opie.

by the way, while I don't specifically use inside bars as an entry technique, i absolutely do 100% agree with Damon on two points which rarely get mentioned, and certainly always seem to be all too easily dismissed by newbies:
1) using Stop Buys and Sells at prices beyond current.
Newbies will always try to buy/sell at Limit, always trying to catch the top or bottom and pick the reversal. Or worse they'll buy/sell at market and get filled at God-knows what price. How can that be part of a professionally assessed set-up and trade ?
Detractors of Stop entry trades always point out the "huge" amount of pips that could have been earned if the trade had been entered as a Limit order. My usual response is that a larger response of limit trades go against you because the trend, however short-term, has not been confirmed.
Better, IMHO, to give up a few pips to wait for confirmation that the market is actually moving in the direction of your trade.

which brings me on to second point, in agreement with Damon's strategy
2) try not to have an opinion about which way the market will go, but position yourself to take advantage whatever happens.

good luck,

Okay, this will be pretty crude and you will have to count arrows, but I will walk you through a few trades on the chart below.

Here is a view of the EUR/USD.

****Please count arrows from left to right****



Arrow #1 is an inside bar so you would place a buy stop 1 pip plus spread above the high and place a sell stop 1 pip below the low.

Arrow #2 represents the candlestick where the buy stop order was filled. As you can see the price went back up and come back dow to end for a small loss. Here you could have either closed your trade or kept it going. Let's say we kept it going.

Arrow #3 represents the price hitting our hard stop where the sell stop would have been triggered. We are now in a sell position. When we got back to our computer we would also re enter a buy stop in the same position that we did before. This trade hit our entry and closed for a small loss, but we decide to keep the trade open. at this time we are -60 pips.

Arrow #4 represents where the trade went and triggered our buy stop order thus exiting our short order for a small loss. This trade triggers our order and closes at the end of the day down for a small loss, but we keep the trade open. The next day we would have reset our sell stop because we are still using the same candlestick as the inside bar. At this time we are -120 pips

Arrow #5 represents a large downward bar. Because we would have been in profit with this trade we would have already moved our postion to at least break even or just above (let's say 10 pips). Maybe you would have even moved your trailing stop up a bar since you were in good profit. In coming down, this bar would have once again hit our sell stop order before coming back up a bit and leaving us with a slight loss. We decided to keep the postion open. We would have also reset our buy stop based upon that same inside bar as there has not been another inside bar formed yet. At this time we are -110 pips.

Arrow #6 represents the price pushing through our buy stop and triggering our long order thus closing our our short position for a small loss. We are now -170 pips or $170 dollars on a mini 1 lot entry. Now the price moves in our favor and we would adjust our stops as we went along as we felt comfortable.

Arrow #8 represents the formation of the next inside bar. At this time we close all pending orders from the previous inside bar and add new buy stop and sell stop orders per this bar.

Arrow #9 represents a large downward movement taht would have closed out our previous postion when our new sell stop order was triggered. As you can see the bar closed much lower than our sell order and so far in this trade we are in a nice profit. We move our new stop loss to break even or to + 10 pips. After our original postion closed, we know have a profit of 236 pips. This should have also been a long enough run to add on some additional postions based on other strtgies you amy be using. You could have even entered at least one more time using the same method with an outside bar. You may think that this is not a lot of pips, but in fact I see more than 5 - 10 possible additional entry postions as the trend goes up before we took profit here. So this 236 could maybe have been over 600 - 1000 pips. It should also be noted that my 2nd and 3rd postions would have been for more than 1 lot as well and then the remainaing back to 1 lot.

Arrow # 10 represents where the price would have hit our trailing stop of 10 pips (or whatever you wanted) and then went up and pushed through our new buy stop before coming back down and closing for a loss. At this time we would reset our sell stop order. At this time without any additional add ons we would be + 246 pips

Arrow #11 represents the candlestick closing out our original long position and triggering our short position. To be honest with you I am not sure how many triggers happened in this area, let's say that we would have taken another 3 losses in this area of 77 pips, which brings our total to + 15 pips. If you had only used one entry during this time frame, do you see how you would not have made hardly any profit even though you cought the whole move?

Arrow #12 represents the trigger that will take us out of this sideways market. Ignore arrows #13 and #14 as they are not relevent

Arrow # 15 is the next inside bar, and we would set our buy and sell stop orders approperiately.

Arrow # 16 is the bar that would have closed our position and opened up a reverse postion by triggering our sell stop. There would nave also been at least 2 additional add ons, but we arn't counting them for this method and the move was small so they would not have amounted too much. So at the close of our position, we would be up +115 pips.

Arrow # 17 represents the next inside bar and you would have set up your buy and sell stops accordingly. Since our buy stop would not have been triggered in htis case, our postion would still be open as it continued to head down.

Arrows #18 and #19 are the next inside bars, but our postion would not have stopped and reversed until arrow # 19. There would have been at least 10 other supplement entries in this run which would have compounded our profit, but without them we would have a total proft since arrow # 1 at right around 500 pips. With the compounding on this section of the trade alone we would have added a substantial amount of pips with the 2nd and 3rd trades for more lots and the rest than back to 1 lot.

After Arrow # 19 our trade would have swung back up and would have closed just after arrw # 20 where it would have opened up a short postion as well which because it closed in profit we would have brought our trailing stop to + 10 pips. Total including this run without add ons brings us to around +775 pips. Once again, other entry strategies along the way would have produced a very nice compounded trade with many additional pips.

Arrow # 22 represents the close of our next trade and the open of the sell postion which you would still currently be in. Total for this screen shot in pips would have been + 900 pips without the add ons.

Phew.....this has been a long process. The real key here is that this trade helps us find the trend. And easy money is made from a break out. Easy money is lost and hard money is made in a ranging market.

Now that we have found the trend, imagine adding on an OzFx trade, a fractal entry, a green or red zone entry, and AO entry, an outside bar entry, and even a divergent bar entry. You would have taken a simple 300 - 500 pip move, lost a few at the start and turned it into 1000 pips or more just by using additional methods to add on to what you already know has turned into a good trade. Without doing any calculations, but after compounding a few additinoal postitions, I bet that our +900 pips in profit could realistically have been turned into close to 3000 or more, and this is just one currency pair. But, compunding is a whole other concept and that will be up to you to find other systems and learn other methods for yourself.

I will walk you through my trades and add ons as we go along and as time permits and I hope that you are able to follow all this.

Cheers,

Damon

I've done data mining studies on inside bars and I couldn't establish any statistical edge. Part of the problem is that the bar structure is different on different data feeds, the other is that it doesn't really tell you where the price is going, only that volatility will increase.

rathcoole

what is your problem. I'm just trying to grasp the concept because its something i'm interested in. I don't appreciate your negativity and you can piss off