The Inside Bar Momentum Strategy

The Inside Bar Momentum strategy was designed by a trader called Roboforex. This trader posted his strategy on the Babypips Forex website and regularly comments on its performance.

An Inside Bar is a candlestick pattern consisting of two candles. The high and the low of the first candle are above the high and below the low of the second candle. The strategy is based on this candlestick pattern.

Suitable for	: All forex pairs
Instruments	: Futures and CFDs
Trading type	: Daytrading
Trading tempo	: 3-4 signals per week
Using NanoTrader Full	: Manual or (semi-)automatic

The strategy in detail

Inside bar pattern indicate a period of consolidation in a market.  They often appear when the market pauses after a strong price move. Inside bar pattern also appear before specific market turning points. They can therefore also be used as a reversal signal.

The Inside Bar Momentum strategy is applied on a 4-hour chart. It can be used for all forex pairs.

When to open a position?

A buy signal

The first candle must be bullish. The second candle must be contained by the first candle. A position is opened at the market price if the price of the first candle, after the completed pattern, reaches the first candle’s high plus 10% of its range (high minus low).

A short sell signal

The first candle must be bearish. The second candle must be contained by the first candle. A position is opened at the market price if the price of the first candle, after the completed pattern, reaches the first candle’s low minus 10% of its range (high minus low).

This example shows a short sell signal and then a buy signal. The grey box indicates the Inside Bar pattern.

When to close a position?

The Inside Bar Momentum strategy has a profit target and a stop loss to protect the position.

The profit target is placed at the first candle’s high plus 80% of its range for a long position or at the first candle’s low minus 80% of its range for a short sell position.

The stop loss is placed at the first candle’s high minus 20% of its range for a long position or at the first candle’s low plus 20% of its range for a short sell position.

This example shows a buy signal. After the Inside Bar pattern, the market moves above the high of the first candle of the pattern. A position is bought. The profit target is reached within the same 4-hour candle. The position is closed with a profit.

The Inside Bar Momentum strategy is a simple and straight-forward Forex Scalping strategy which is applied on a 4-Hour chart. Both the stop loss and the profit target are placed very close to the entry price resulting in profit or losses of only a few Pips per trade.

Note: Since this strategy is using a “confirmation price” in order to validate the signal the back-testing results may deviate if the position is closed in the same period as it was opened.

Practical implementation

Using the NanoTrader Full follow these steps:

• Open a forex chart.
• Select the template study "WHS Inside Bar Momentum” in the "WHS Strategies" folder.
• To trade semi-automatically, activate TradeGuard+AutoOrder in the chart. To trade automatically, activate AutoOrder in the chart.