The price action trading method is a powerful way to secure good trades. Thousands of traders are using the price action system to find some great trades. Though we have plenty of reliable patterns, we are going to learn about the inside bar pattern trading method. Inside bar pattern trading is a very popular trading system and most of the advanced price action traders use this model. To understand the concept of the inside bar pattern, you need to learn about the ranging first.
A ranging market is determined by the confident movement of the price within a specific level. If the price of an asset is bounded by a particular support and resistance level, you have a ranging market. Now let’s come to the identification process of the inside bar pattern. The inside bar pattern is formed when the price of a particular candlestick is trading in between the high and low of the last candle. The first candle is known as the mother candle and the second candle is the inside bar.
Breakout of the inside bar
Traders usually look for the breakout of the inside bar pattern to take the trade. In most cases, the breakout favors the trend. To trade the reversal, you need to focus on the fakey pattern. But we are not going to discuss the fakey pattern trading method as it will confuse you. After spotting the inside bar successfully, you have to look for the breakout of the high or the low of the mother candle. As soon as the breakout takes place, you can execute a trade.
Setting up the stop loss and take profit
The elite traders at Saxo capital markets pte use the mother bar to determine the stop loss of the trade. However, if the mother candle is very big, it will be a tough task to determine a good risk to reward ratio. In that case, the traders need to wait for a minor retracement in the price. Take your trade with the minor retracement.
The take profit determined by assessing the support and resistance level of trading instruments. If you use the hourly chart, you can use the major support and resistance. But when the analysis is done in the minute chart, you have to carefully select the take profit in the minor support and resistance. Before you dive deep into the real market with this model, you have relied on the demo account to practice more.
Dealing with the loss
The inside bar is a powerful way to make money in trading. But every trading system faces some losing trades. To deal with the losses, you have to analyze the risk factors. The maximum risk you are allowed to take in the trade is 2%. However, if you are good at managing the trending setups, you can take a 3% risk with this trading model.
There are many ways by which you can limit the risk of trading. But it should be done in an organized way. Think about the long term goals. If you are losing more money than the winners, you are not using a good risk management plan. A perfect risk management plan should follow the standard rules of money management. That is, the risk-reward ratio for the trade must be 1:2. If not, stop taking trades in the real market.
Trading the major news
If you are good at spotting the inside bar pattern, you can also trade the major news. Trading the major news might seem a very challenging task but thousands of traders have mastered this technique. Stick to the demo account when you try to trade the major news. Once you become good at analyzing the news, you can trade with low risk. In news trading, the maximum risk is 1% per trade.