Breakout Strategy With Inside Bar

Creating a trading strategy doesn't have to be complicated. Today we will review a simple price action strategy using bars. In this article, we will cover the basics of price action and apply the inside bar trading strategy.

Identifying the Inside Bar

What makes the inside bar trading strategy so appealing to new traders is its easily identifiable shape. All that is needed is the current price chart and the ability to identify the previous high and low points.

Below we can see an example of bars forming the daily chart of USDCHF. The analysis begins by determining the high and low points of the previous bar (mother bar). The high of that bar is at 0.9551, while the low reaches 0.9417. Now, if the next bar forms with high and low points within the boundaries of those two values, then the inside bar pattern will be confirmed.

The Use of Inside Bar for Breakout Strategy

After identifying the inside bar formation on the chart, we then proceed to use the breakout strategy. The inside bar can signal a breakout with the high and low values on the mother bar acting as support and resistance levels. If the price breaks above the high point at 0.9551, you can enter a buy position. If the price falls and drops below 0.9471 or lower, then you can open a sell position.

When utilizing the breakout strategy, there is always the potential for the market to reverse and cause what is known as a "false breakout." Therefore, also include a stop order to protect against such false moves.