The 2X Inside Day Set Up.
Inside day is a widely followed trading strategy for securities with range-bound price movements. It suits forex trading in particular due to the nature of price swings observed in forex markets. The 2X inside day is a cone shape pattern that has two inside days inside of each other. I developed this set up to find days within a trend when the market slows down substantially and .
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Live, interactive sessions Develop your trading knowledge with our expert-led webinars and in-person seminars on a huge range of topics. Upcoming Events Economic Event. Forex Economic Calendar A: More than quite often, you will notice an Inside day after a strong initial rally or decline in the price.
This type of Inside day will fall under this category. After initial rally, price starts consolidating and forms an Inside bar. Again the price makes second round of rally and forms an Inside bar indicating accumulation before next leg of up move. When the big time players take no interest in the market, the liquidity dries up and the price stops making any substantial moves leaving the market in a small range. Whenever the institutional traders stay away from market activity, price has nowhere to go but to trade in a narrow range.
This period of indecision may last for long depending on various factors. As a consequence, price is reflected through multiple Inside Bars. Market goes in to a range and we get multiple Inside Bars within very short span of time. A trader needs to exercise enough caution against such Inside Bars. The success, efficiency and the effectiveness of trading the Inside Bars largely depends on spotting the highly reliable Inside Bars.
It is important to note that all Inside Bars cannot be traded profitably. To ensure that we trade only reliable Inside Bars, following guidelines are of utmost importance. We are aware that big money is always with the trend. Hence as a thumb rule, we avoid trading Inside Bars against an ongoing trend. To mitigate the risk to the possible extent as well as to magnify our gains, we always trade in the direction of the trend.
For example if the major daily trend is long, we trade Inside Bars only on the long side and avoid opening shorts. It is a proven fact that most of the large drawdown in trading accounts are due to counter trend trades. It is pertinent to note that all profitable traders are always in sync with the thought process of big players in the market. Trend always signifies the opted direction of institutional traders.
Inside bar formed during a low liquidity period must be ignored. Examples are Christmas holidays, all US Bank holidays and other holidays when big ticket players remain absent from the market. During these periods, due to non presence of big time players, the range shrinks and the chart will start printing Inside Bars.
Since these Inside Bars are formed as a result of low liquidity and not due to a process of accumulation and distribution i. We make entry on the breakout of an Inside bar, in the direction of trend baring cases of reversals. Just to understand, In case the overall trend is up, we go long with the breakout on the upper side. In this context, it is very important to note that we make the entry with the momentum as most of the breakouts without momentum end up with false breakouts.
For ascertaining the momentum, one can scale down to next lower timeframes like 4 hour, 2 hour or 1 hour charts respectively.
We place the stops in a sensible way so as to make it neither too big nor too small. Under this strategy we always place the stops on either side of the Inside Bar depending on which side of the market we are trading. When we go long, we place the stops just below the bottom of the Inside Bar and vice Versa for short entries.
Inside Bar Breakout Strategy offers very low risk Almost nil! A Risk is to Return of 1: Just to give you an idea, because of the incredible risk reward ratio this strategy has to offer, one can wipe out 10 consecutive losses in a single trade.
That says all about the power of trading this strategy. After initial rally in the price an Inside Day is formed. When the price breaks high of the Inside day the long entry is taken placing the stop just below the low of the Inside Day.
A reward of pips for a risk of 70 pips comes to Risk reward ratio of almost 1: Forex traders build models and strategies based on this concept. On a related note, see: How to Build a Forex Trading Model.
As with any trading strategy, it is important to keep a target for taking profits. Inside day breakouts offer limited risk and high reward for breakout patterns. Multiple inside bars can help traders build cumulative positions i. Once the expected breakout occurs, the profit potential is significantly higher. The stop-loss level can be retained at that of the first day and while high reward can be accomplished with multiple inside bars. In fact, if followed in a disciplined manner, there is potential to cover multiple losing trades with one single profitable trade thanks to the better risk-reward ratio 1: Highly liquid stocks are also strong candidates for this strategy.
It should look like this: Why and how do inside day patterns get formed? Here are the key reasons why inside day patterns form: How to trade inside day pattern Inside day patterns often arise, but traders should note that not all inside day patterns are profitable.
Heed the important points below:
As we said, in order to identify inside day chart pattern, we need to use a daily chart. Such periods also give way to inside day pattern formation.
These institutions were publicized in Bretton Woods in