By: Johnathon Fox
In the last few Forex educational tutorials I have covered Price Action formations that act only as reversal signals. The Price Action signal we will discuss today can be played as either a continuation pattern or as a reversal play.
The Inside Bar
The inside bar is a two bar formation. The inside bar must do as it name states and be completely inside the preceding bar. The high and the low of the inside bar must be inside the whole of the previous bar.
Example of an Inside Bar:
Where to Play Inside Bars From
Inside bars can be played as two different scenarios.
When looking to play the inside bar as a reversal signal traders need to look to trade from swing lows and swing highs. Traders will be looking to pick a reversal in the opposite direction of the trend or the current momentum of the price. To enter an inside bar as a reversal signal, traders will be entering on a break out higher of the inside bar, with the stop preferably on the other side of the inside bar.
The only danger in this play is the occasions when traders can be faked out. This is when the market fakes out one way making traders think that the market is going to break out before whipping out their stops and cruising back the other way. To prevent this traders are encouraged to match their trades up with logical support and resistance areas.
Example of Reversal Inside Bar From Swing Low:
Continuation Inside Bar
The second way traders can play an inside bar is from a continuation. This is when a strong trend is in play and then an inside bar forms. Traders can play the break out placing their stops the other side of the inside bar and look to ride price higher or lower with the existing trend.
Example of Continuation Inside Bar:
Inside Bars form regularly on all time frame charts on all pairs. New traders can have a tendency to get carried away with trading inside bars due to the frequency they form. To combat this traders are advised to stick to only trading the very best setups and only begin trading live after they have proven to themselves they can make money consistently on a demo account for a period of a minimum 3 months.
If traders can’t make money on a demo account they will not be able to make money on a live account. Stick to a demo, perfect your method and then go live.