5 Forex Trading Strategies with Examples

The first example is what you want to look for while the second is what you should avoid. An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening. Although the Inside Bar is fundamentally a two-candle pattern, the third candle following the baby candle is of significant importance. In fact, the trading decision is typically made after the completion of this third candle.

Tips for Trading Inside Bars:

Inside bars typically occur as a market consolidates after making a large directional move, they can also occur at turning points in a market and at key decision points like major support/resistance levels. The final and crucial step in leveraging the Inside Bar pattern is to always set a stop-loss order. Given that Inside Bars may signal either a breakout or a trend continuation, market movements may not always align with your forecast. When looking for these types of trades, you first want to identify a strong trend. You can use moving averages, a momentum indicator, or simply just look a the price action to see strength of the trend. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy.

What is the number one mistake traders make?

This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up. In the chart below, we can see an example of a good inside bar reversal signal. Of critical importance here, is that the inside bar formed at a key chart level, indicating the market was hesitating and “unsure” if it wanted to move any higher. We can see a decent downside move occurred as price broke down past the inside bar’s mother bar low.. I prefer smaller and “tighter” inside bars that don’t have really large mother bars…this shows more ‘compression’ and thus a stronger potential breakout from that compression.

Carry trade strategy

  1. By doing so, you limit your trade potential to the point that you are likely to begin taking subpar setups.
  2. In either case, your stop should be located below the bottom of the range as shown on the image.
  3. You can either place trades manually within this range or set stop losses and limit orders.

This is what you want to see in a favorable setup, especially if you are using the more aggressive stop loss placement, which means placing your stop loss below the inside bar rather than the mother bar. Notice how the second candle in the image above is completely engulfed, or contained, by the previous candle. In this case, the bearish candle (mother bar) https://forexhero.info/ represents a broader downtrend, while the bullish candle (inside bar) represents consolidation after the large decline. Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. The relative dimensions of the Inside Bar compared to the Mother Bar can greatly influence the precision of the trading signal.

Top seven forex trading strategies for beginners

An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar. In other words, the Inside Bar has a higher low and lower high than the previous bar. It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. This is one of the most popular technical chart patterns around and there are several trading strategies that utilize this pattern. Before we get into actual trading strategies, let’s see at what an Inside Bar looks like, what it can tell us, and why it happens.

But before we do that, let’s first take a look at how an inside bar forms and what the pattern represents. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. The forex market is a dynamic and ever-evolving landscape, offering traders… For exits, savvy traders might implement trailing stops to safeguard gains. The straightforward nature and adaptability of the Inside Bar pattern equip traders with the means to time their market entries and exits. There are 2 basic types of Inside Bars that traders use to enter trades.

The first candle of the pattern is usually large, called the mother candle, while the next candle is a small candle having low wicks, and is called the baby candle. In another case, when the mother bar does not appear, it’s also called the abandoned baby candle pattern. Some of the most popular technical indicators used to identify trends in forex trading are moving averages (MAs), relative strength index (RSI) and average directional index (ADX). In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups.

Below, we will show you two market examples to trade the inside bar pattern – range and breakout trading strategies. As discussed earlier, as long as the first candle covers the first candle, it is an inside bar pattern. Note how the price continues to trade higher after the appearance of the inside bar pattern and the confirmation of the third candlestick’s formation. Jay and Julie Hawk are the married co-founders of TheFXperts, a provider of financial writing services particularly renowned for its coverage of forex-related topics. While their prolific writing career includes seven books and contributions to numerous financial websites and newswires, much of their recent work was published at Benzinga.

Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts. Again, some traders can get so wrapped up in taking trades that they forget to examine the quality of the signal. If you are still struggling with drawing support and resistance levels, read this guide. The inside bar is a popular reversal/continuation candle formation that only requires two candles to present itself.

This is because there is less trading volume in these markets, which causes a lower level of liquidity. Volatile currency pairs offer the opportunity for quick profits, but trading these markets also comes with the risk of quick losses. Learn inside bar trading strategy more information about major, minor and exotic forex currency pairs. The most patient traders may choose the forex position trading​, which is less concerned with short-term market fluctuations and instead focuses on the long term.