Simple Inside Bars

[jon1971]

OK, this is all making very good sense, and to increase probability I should also be looking for the trade to be in tune with the longer term time frame trends (weekly and monthly) in the case of £/$ currently this would clearly be a long position.

Thanks to all who have replied to my questions.

Jon

 

[Lord Flasheart]

Its fantastic to see this thread is growing in stature all the time. Well done to Foredog for that. Since march I have logged every bar that has met PCs criterior. I have traded some live subject to me not being at work(always gets in the way at the mo). I used £3 a point to start with and took £1 of at 30 pips, £1 at 70 pips and £1 of at 120 pips. Stop moved to B/E once first target has been hit.There were some different targets for different currencies and quite clearly if trading live 120 pips may be just the start. But by using 120 as a target it allowed me to analise other IBs that occured after the initial one. If another bar occurs while you are in a trade quite clearly its best to add 2 more stake units. This happened a good few times for great reward.If there was any doubt as to wether it would have hit my target or stop I marked it down against me. Only the eur/chf is showing a loss at the moment. There were of course many loses and many + £30 profit trades. The £120 target is making the most money.This clearly proves the point about Risk/reward ratio and why it is so important. Eur/jpy was the top performer,returning with £1375 for a starting stake of £3 and a risk of £90(ave). 10 weeks is a short time, but if you had traded every signal the good news is you wouldnt have had a losing week.This however would have meant taking 3 currencies against the $ all at once.I cant see anywhere on pcs thread where he deals with that situation. Hope that encourages you all as much as it does me.

 

[timsk]

I used £3 a point to start with and took £1 of at 30 pips, £1 at 70 pips and £1 of at 120 pips. .

Hi Julian,
I'm glad it's all coming together for you - good work. The inference from the sentence I've quoted is that you set mechanical stop and target objectives. That said, you mention later that you have different targets for different pairs - so I may have misinterpreted what you've said? The comments that follow aren't directed at you specifically (as they may not apply to you), but I think are worth pointing out for those traders who do use pre-set mechanical stop and profit targets. I myself used to use them, but don't any longer for reasons that I'll explain. Chief amongst these is that stop loss and profit targets should be dynamic, based on the volatility and behaviour of the instrument being traded. Applying pre-set mechanical levels is liable to skew ones results unfavorably with a negative impact on the P&L. An obvious example to illustrate what I mean is if, say, one has a mechanical stop loss at 10 pips below a long entry, but there is clear support at 15 pips below entry. In this example it would make sense to place the stop at, say, 20 pips away so that if price tests support before shooting up on its merry way - you don't get stopped out. To compensate for the wider stop, one would need to reduce the position size by half. When I traded full time last year, I used this approach in conjunction with ATR which measures the volatility of the instrument. So my stop would be, say, 0.5 x ATR, first target would be 1 x ATR and second target 2 x ATR etc. I would start with ATR and cross check it with the price action on the chart. If there was any conflict, price action always trumps ATR if a wider stop is indicated. ATR trumps price action if a narrower stop is indicated. The beauty of this approach is that it's the dynamics and volatility of the market which decides where to set stop and profit targets, rather than the trader trying to impose what he or she wants or needs from the market.
Tim.

 

[Lord Flasheart]

Absolutely Tim.If I was trading live then I would noy have a mechanical stop for the reasons you mentioned. I just had to fix a point so as to backtest in a realistic a way as possible. When live Ive been using gut feeling for when to get out on the third point, but will look closely at wgat youve said

 

[Splitlink]

Hi Foredog and friends,

I've seen your post on PC's Forex Factory thread. I, also, have seen your IB thread, so know that this subject interests you. Would you tell me if you do much trading with Footsie? I can't seem to get good inside bars with index trading. Wondering whether I am wasting my time and should carry on with my trend spotting routine, which gets me results. The trouble with trend following are the whipsaws, so I thought that I would study inside bars.

Most of the charts posted, though, are Forex so, maybe, IBs suit Forex better.

I couldn't see any good IBs on this morning's DAX drop, but my trend method would have caught it, I'm sure.

Regards, plit

 

[timsk]

Most of the charts posted, though, are Forex so, maybe, IBs suit Forex better.

Hi Split,
IB's are a natural consequence of buying and selling pressure: they are the visual representation of a temporary state of affairs in which the market finds brief parity before it either reverses or continues on its merry way. If they occur early on in a young trend, they are more likely to be continuation IB's. If they appear late on in a long established trend that appears to be running out of steam, they're more likely to be reversal IB's. The beauty of them is that they give you an early heads up on one of two imminent market moves: a reversal or a continuation. Given that all markets both trend and reverse - and are governed by the laws of supply and demand - I see no reason why IB's wouldn't be as prevalent and as useful for trading the FTSE as they are for FX or any other market for that matter. They aren't great in sideways choppy markets so, IMO, they're suited to aiding the trend trader to enter at or near the start of a new trend or to jump on board an existing one. In your case Split, I doubt they'll prove especially useful in trading a non-trending market. My logic may be flawed or misguided, so don't take my word for it, but that's my thinking on the subject at the moment.
Tim.

 

[rawrschach]

Hi Foredog and friends,

I've seen your post on PC's Forex Factory thread. I, also, have seen your IB thread, so know that this subject interests you. Would you tell me if you do much trading with Footsie? I can't seem to get good inside bars with index trading. Wondering whether I am wasting my time and should carry on with my trend spotting routine, which gets me results. The trouble with trend following are the whipsaws, so I thought that I would study inside bars.

Most of the charts posted, though, are Forex so, maybe, IBs suit Forex better.

I couldn't see any good IBs on this morning's DAX drop, but my trend method would have caught it, I'm sure.

Regards, plit

Look for 5 minute IBs on the FTSE.

As long as you know how to draw levels it doesn't matter if the market is trending or not.

 

[foredog]

Hi Foredog and friends,

I've seen your post on PC's Forex Factory thread. I, also, have seen your IB thread, so know that this subject interests you. Would you tell me if you do much trading with Footsie? I can't seem to get good inside bars with index trading. Wondering whether I am wasting my time and should carry on with my trend spotting routine, which gets me results. The trouble with trend following are the whipsaws, so I thought that I would study inside bars.

Most of the charts posted, though, are Forex so, maybe, IBs suit Forex better.

I couldn't see any good IBs on this morning's DAX drop, but my trend method would have caught it, I'm sure.

Regards, plit

Hello Split

I've found that IB's are more rare on the hourly chart for the indices, i think this may be more due to the shorter timeframe that they mainly trade in, (eg only 8am - 1630 UK) and also that they can be influenced by both the futures an the underlying stocks so can e a bit more choppy. I have seen some on the lower time frames (15 mins or so) and you just need to be picky.

Saying that I'm sure there are some on the hourly and you just need to watch for the good one's.

I was trying to trade these on individual FTSE stocks, but the combination of the choppiness and the low volume made them more difficult to trade.

I think this method can work on any market it's just that some markets will have more opportunities than others.

 

[Splitlink]

Thanks for the answers, I'll keep concentrating on this. Rawrschach got me to look 5' and that showed a result on the Dax. There was an inside before the open. If I'd seen and taken it the profit would have been fantastic!

I didn't, though.

 

[nine]

Split,

You have just illustrated the main situation in which I'll use an inside bar - when it fails.

A failure is a much better trade than a simple success because you get a following who shorted that bar when it broke below and then have to chuck up when it breaks back above adding to the group who were looking to go long.

Note also that on a lower timeframe such a failure will look like a test-retest as a double bottom of some form.

 

[timsk]

I agree with nine.
A failed breakout out is the safest trade to take. If the breakout of what I call the holding bar - HB (i.e. the bar /candle prior to the inside bar whose high / low contains the inside bar - IB) is a failed reversal in the context of a strong trend, then this becomes a very strong trend continuation signal. An aggressive trader could enter at this point and not wait for price to breakout at the other end of the pattern.

An addition note on stops. The most obvious place to put a stop is at the other end of either the inside bar itself or the HB. If the breakout fails and price closes back inside the high / low of the HB, close your position immediately as it's highly likely that price will breakout at the other end of the HB. Why wait for that to happen and incur a bigger loss? There is an argument even to stop and reverse if all your other signals confirm such a move.

The attached chart illustrates the point.
1. The breakout above both the IB and the HB fails and price closes back 'inside' the high / low ranges of both bars. Anyone who had gone long on the breakout would do well to close their position at the close of the failed bar (red arrow) and / or consider going short.
2. Same pattern in reverse. Traders wanting to join the trend down will have shorted on the breakdown, only to see price close back inside the high / low range of the HB. It's probable that price will now go in the other direction, so best to close the short and consider going long. In this case, anyone doing this is likely to have been stopped out 2 candles later by the pin bar. Note however, that prices never close below the low of the HB. I maintain that it's the HB that's the really significant bar of the pattern and NOT the IB itself.
3. Same pattern. In this case, the long pin bar is fishing for all those poor suckers who shorted as price broke below the key RN at 3500. There's no volume on this chart, but I wouldn't mind betting that the volume on the huge bull candle that followed was equally as impressive as the candle itself as huge buying pressure gobbled up limited supply.
4. This early trend continuation signal failed initially, before price eventually continued up. However, the IB trader could still have grabbed 100 points or, at the very least, raised their stop to b/e.
I've just picked out some examples here to illustrate the failed signal. Look through the chart and you'll see plenty of others that worked just fine.
Tim.

 

[foredog]

An addition note on stops. The most obvious place to put a stop is at the other end of either the inside bar itself or the HB. If the breakout fails and price closes back inside the high / low of the HB, close your position immediately as it's highly likely that price will breakout at the other end of the HB. Why wait for that to happen and incur a bigger loss? There is an argument even to stop and reverse if all your other signals confirm such a move.

Agreed Tim

For this thread i was showing a simple system which would require minimal maintainence eg set and leave and monitor once an hour.

BUT

For most of my trading i will have my stop above/below the IB but once it has broken out by a decent amout then i will quickly cut if it pulls back past my entry. As you say the best IB's are generally the ones that have a strong move away from entry from the begining so with the others the i just try to mange the trade away from a loss.

 

[montmorencyt2w]

Timsk: RN=?

Thanks,
Mike

 

[superspurs]

round number

 

[montmorencyt2w]

round number

Doh! - Thank you!

 

[timsk]

Yeah - round number.
I don't know about FX as I don't trade it (I think I'm one of about only 10 peeps here on T2W who don't!) - but RN's play a major part in trading indices and stocks (especially U.S. stocks). Support and resistance can often be found at RN's; the bigger the number, the more important it tends to be. Ignore them at your peril!
Tim.

 

[montmorencyt2w]

Thanks Tim. I think they do have some significance in FX as well.

Cheers,
Mike

 

[foredog]

I opened one of the ETX capital accounts with the free £100 so i have decided to try and trade that into something decent using Inside bars with the occaisonal pin bar as well, i have begun updating my blog and will try and post here as well, hopefully to show newbies it can be done (or maybe not)!!!

Had a good start, first trade i took was a profitable one, 140 pips and since then one loser of 20 pips and one breakeven. So trading 50p per pip i now have a balance of £160.

 

[foredog]

TRADING RULES

* Breakouts of Inside bars and Pin bars.
* In direction of the day which will be decided by taking the open of the 6am bar on my chart.
* Long above 50 period Moving average, shorts below 50ma.


MONEY MANAGEMENT

* Stop losses will be 20 points from entry
* once 30 points in profit i will move my stoploss to entry. (amended from 40)
* Stoploss wil be trailed a few points above(short) or below (long) the the high or low of each 1hour candle.
* I will initially risk £10 per trade, or 10% as the account is only funded with the free £100 from ETX, this will be reviewed as the account grows.

 

[foredog]

In case you missed the ETX offer

Our Platform | Financial Spread Betting | ETX Capital