Although this may seem technical, it is much easier than it sounds. Both Inside Bar and Outside Bar are two fairly well-known patterns in trading. I explain them to you.
1. Inside Bar. What is it? How is it operated?
Inside Bar is one of the most common and effective Japanese candlestick formations. Without intending to spout a tongue twister without rhyme or reason, the Inside Bar is a candle that remains inside a previous candle.
2. Types of Inside Bar
Basically we have 2 types of Inside Bar:
2.1. Inside Bar below
In order to operate this figure, 2 fundamental requirements must be met:
– We must have a very defined trend and there should be no doubt about where we are.
– We must be very far from reference levels. These can be averages, supports or resistance and the relevant volume zones.
2.2. Inside Turn Bar
As in the previous case, 1 fundamental requirement must be met in this case:
– The price must be at reference levels. These can be averages, supports or resistance and the relevant volume zones.
3. When to enter the trade and how to place the stop loss
If we start from the basis that we are working in trends, you should keep in mind that you have to enter in this case always in favor of it, avoiding that the price is in a relevant area, such as support or resistance; this could imply a bounce, false breakout, or trend reversal.
Ideally, you should do it with a conditional order at the high of the mother candle in the event that the buy is in an uptrend, or in the low of the mother candle in the event that the sale is in a downtrend.
But Rubén, why in the mother candle?
Because the internal candles mark indecision and this can be prolonged over time. When it actually launches into the continuation of the trend, it will have to go through the low or high of the mother candle, and there you will be waiting in the first position to ride the trend.
Stop losses can be placed in 2 ways:
Below the inner bar in case of purchase.
Above in case of sale.
Case of successful stop loss placement: José places the stop loss (this sounds very like an Etoro ad) above or below the mother candle, at a distance of 1 pip. If he messes up, he wants you to jump in right away to minimize losses; That gives you flexibility over minute market moves and allows you to be in when the price rolls around again.
4. Conclusions on trading strategies with Inside Bars
In summary, these are the most important points to keep in mind with this strategy:
- Trade on daily charts.
- Operate in favor of the trend.
- Do not operate in relevant areas until you operate well with trends.
- Enter limit orders at the highs and lows of the mother candle.
- Place the Stop on the opposite side to the entry of the mother candle.
- The more Inside Bars there are, the stronger the signal will be.
- Take into account the confluence factors to make decisions.
6. Outside Bar. What is it? How does it work?
The Outside Bars trading strategy is a simple trading strategy where spotting the pattern setup is easy and has uncomplicated trading rules.
The Outside Bar Strategy is very similar to the Inside Bar Strategy. Only the pattern setup is directly opposite. The time frame for this type of strategy is 4 hours a day for planning and execution.
So what is the Outside Bar?
It is a 2 bar (or candle) pattern. It can also be called “Bullish Engulfing” or “Bearish Engulfing”.
The outside bar or candlestick eclipses the previous bar.
This means that the Outside Bars strategy wraps the bar that precedes it.
7. Rules with Outside Bar
An idea of how to trade with this trading strategy:
One idea is to place a Buy Stop order for a bullish Outside Bar if it is 2-5 pips above the high. On the other hand, it is interesting to place a sell stop loss order for an Outside Bearish if it is 2-5 pips below the low.
Simultaneously place stop loss on the other side; 2-5 pips away from the low if it is a Buy Stop order and 2-5 pips above the high if it is a Sell Stop order.
For management you can use a trailing stop behind the low if it is a buy order and above the high for a sell order.
8. Advantages and disadvantages with Inside Bar and Outside Bar
In addition to everything that I have told you previously, it is also very important that you know some of the advantages and disadvantages of using both one strategy and the other.
8.1. Advantages of Inside Bars
I can review and review that the main advantage of Inside Bars is that they offer the possibility of making low-risk entries.
8.2. Disadvantages of Inside Bars
Depending on your strategy and operating system, it is best not to trade Inside Bars simply because they represent low risk entries, because taking low but unnecessary risks in the long term is not profitable.
8.3. Advantages of Outside Bars
It is easy to understand and implement.
The market has the potential to move a long way once these outside bars are formed.
8.4. Disadvantages of the Outside Bar Strategy
Stop Loss distances are huge. You therefore need to calculate lot sizes based on the risk you are willing to take.
It may take a while to start seeing benefits in your trades.
You should take trades on the outside bar when the chart pattern occurs around support or resistance levels, pivots, etc.
9. Conclusions
In conclusion, after all this post on technical concepts and a generic breakdown of these two types of bar trading strategies, I would tell you that the most important thing, as I always mention in all articles, is the conscientious study of the results applying strategies.
In this way we can select important aspects such as what type of stop loss to set and when to execute a specific strategy.
As always, a pleasure.
Patience. Lots of patience and systems.
Thanks for getting here.
We will read each other in the next one.