Back to trading inside bars only

Last week I decided to take a break and re-evaluate my trading strategy and try to define my edge in the market. I came to the conclusion, that I was trading to many methods / patterns. I do not have time for this and as a result my analyses were lacking focus and consistency. So I will take a step back and trade only one method and only on major currency pairs.

Inside bar Ichimoku strategy

Use corrections in confirmed trend to get in on the move.
Markets either trend up or down or move side ways. My strategy is for trending markets only. In a trend prices usually do not move only up or only down. Instead prices move in an impulsive - corrective manner. Check out this post for a good explanation of impulsive vs corrective moves. My strategy is to identify the trend and then trade in the direction of the trend. I will wait for a corrective move and then place my entries so that when price will continue impulsively in the direction of the trend I will be in the trade.

I confirm the trend by doing Ichimoku analyses.

I will be looking for longs when:
  • The tenkan is above the kijun
  • The open and close price is above the tenkan
  • The chikou is above the past price-action

Additional long confirmation is given when:
  • Price is above the kumo
  • Future kumo is bullish
For shorts I will be looking at the exact opposite, thus:

I will be looking for shorts when:
  • The tenkan is below the kijun
  • The open and close price is below the tenkan
  • The chikou is below the past price-action
Additional short confirmation is given when:
  • Price is below the kumo
  • Future kumo is bearish

Once the trend is confirmed, I will be looking for entries in the direction of the trend based on inside bars during corrective moves. This last part is very important. Sometimes in a trend there can be an impulsive counter-move. If an inside bar forms here I will not trade it, as there is a change that the trend has actually reversed. I will have to wait for a reconfirmation of the trend before looking again for inside bar entries.

This is what an inside bar can look like:

Perfect inside bar in up trend
In above example the initial stop will be below the mother candle (nr5). Entry is triggered as candle nr 8 breaks the high of the mother candle. Here are some more variations:

Inside bars in up trend

Another variation of inside bars in up trend

The trade is exited when the following conditions are met:
  • Price hits initial stop
  • Price hits profit target of 2R
  • Price closes on the other side of the tenkan
Placed entry orders are canceled as the conditions for the trend confirmation are no longer met. Usually the first conditions that is violated is the close price vs the tenkan.

Here is an example of a live EURUSD chart:

As soon as all conditions for the trend confirmation were met there were 5 inside bar trade opportunities. I have marked them. The fifth inside bar entry order was never triggered and finally canceled as price closed eventually below the tenkan at the arrow. Also the trade that resulted from the fourth inside bar would have been closed out at the arrow.

My trading plan is still in effect and I have updated it according to above strategy. I will continue writing weekly posts reviewing my trades and looking ahead at the week to come.