Inside Bars – Reversal or Continuation Pattern?

[Jason101]

Hello people of PA TA,

Inside bars are used to spot potential reversals and continuations (as break outs).

But which one is which? I was wondering if anyone could shine a light on how you decide which is which. Or is it determined by the price level?

I did hear one guy say if the inside bar occurs in a trend, then he would consider it to be a continuation signal, unless the trend has gone on for around 300pips then he would think it could be a reversal. Seems a bit hit and miss.

Or do you look at the previous bars running up to the inside bar to give clues? Or do you say I do not know which it will be until the next bar is printing?

Thanks for your interest in reading this post, hopefully we might get some answers or ideas.

Jason

 

[sighthound]

I've read loads of posts on inside bars and pin bars and pa but to make this work I feel you need to be looking for key areas of confluence with the use of s/r,trendlines or overbought/oversold areas and on what time frame are these bars considered to be the most valid unless looking at multiple timeframes

 

[timsk]

Hi Jason,
If you've not seen it already, have a gander at this thread:
Simple Inside Bars
Tim.

 

[Jason101]

I've read loads of posts on inside bars and pin bars and pa but to make this work I feel you need to be looking for key areas of confluence with the use of s/r,trendlines or overbought/oversold areas and on what time frame are these bars considered to be the most valid unless looking at multiple timeframes

Thanks for your reply.

I trend trade on daily and weekly charts, so the bars should be more significant.

I completely agree with the levels, support and resistance etc.
I should have mentioned that I do not enter on and I am not looking to enter on inside bars.

My point of interest is at the early stages of a new trade before price has travelled far enough from my stop to handle a minor correction. Here the trade is still at risk.

So when an inside bar or multiple inside bars occur I need to decide if this is a continuation inside bar or a reversal. At the moment I am using the inside bar as a “watch out” signal to see what happens in the next bar. By doing this I may tighten up my stop (in the initail stages). Maybe this is all I can do?

I suppose an inside bar represents a point at which bears and bulls agree upon the price for a prolonged time or perhaps a period of time with a lack of volume?

It could be said to look at the levels for a clue but on the other hand if the pattern is forming on a level, who is to say if the price is going to break the level or respect it? Perhaps if price is not at a level that could be seen as a higher probability of a continuation breakout inside bar?

 

[sighthound]

http://www.youtube.com/redirect?q=h...=OJRj2uUItvxCGPDqFAyLpEXzLk98MTMwMDcxNzA0OA==

There are some free vids here that are worth a look.I only look at the free stuff not here to sell the course.

 

[Jason101]

Thanks for the links Tim and sighthound I will check them out.

 

[Pazienza]

Be really careful with inside bars, I think they're a really tough thing to do. You'll get hit a lot, so I think you need to:

a. Be very, very choosy about where you take them.

b. Really let your winners run.

 

[timsk]

Be really careful with inside bars, I think they're a really tough thing to do. You'll get hit a lot, so I think you need to:

a. Be very, very choosy about where you take them.

b. Really let your winners run.

Yes, I agree with Paz and would add that on their own - they aren't good entry triggers. However, as part of a set-up, potentially, they're of value. In the days that I studied them in some depth (I don't use them now), I found the failed breakout - followed by a close back inside what I call the 'holding bar' is much more successful. So, for example, if an inside bar occurs in a trend and you think, 'aha, possible reversal', wait and see what happens. If the scenario outlined above occurs, that's then a good trend continuation signal - especially if it's supported by other factors. I think I've explained all this with charts in the other thread - so have a look there. If it's not explained clearly and it's requested, I'll post a chart example here.
Tim.
PS. Apologies for a rather confusing and poorly worded post!

 

[Jason101]

Thanks for your reply.

I trend trade on daily and weekly charts, so the bars should be more significant.

I completely agree with the levels, support and resistance etc.
I should have mentioned that I do not enter on and I am not looking to enter on inside bars.

My point of interest is at the early stages of a new trade before price has travelled far enough from my stop to handle a minor correction. Here the trade is still at risk.

So when an inside bar or multiple inside bars occur I need to decide if this is a continuation inside bar or a reversal. At the moment I am using the inside bar as a “watch out” signal to see what happens in the next bar. By doing this I may tighten up my stop (in the initail stages). Maybe this is all I can do?

I suppose an inside bar represents a point at which bears and bulls agree upon the price for a prolonged time or perhaps a period of time with a lack of volume?

It could be said to look at the levels for a clue but on the other hand if the pattern is forming on a level, who is to say if the price is going to break the level or respect it? Perhaps if price is not at a level that could be seen as a higher probability of a continuation breakout inside bar?

Yes, I agree with Paz and would add that on their own - they aren't good entry triggers. However, as part of a set-up, potentially, they're of value. In the days that I studied them in some depth (I don't use them now), I found the failed breakout - followed by a close back inside what I call the 'holding bar' is much more successful. So, for example, if an inside bar occurs in a trend and you think, 'aha, possible reversal', wait and see what happens. If the scenario outlined above occurs, that's then a good trend continuation signal - especially if it's supported by other factors. I think I've explained all this with charts in the other thread - so have a look there. If it's not explained clearly and it's requested, I'll post a chart example here.
Tim.
PS. Apologies for a rather confusing and poorly worded post!

Thanks for your reply Tim,
Anyone who takes the time to reply with consideration should not be apologising for anything.

This is the trade I am in-

http://www.trade2win.com/boards/first-steps/120192-understanding-price-action-2.html#post1462168

And below are the inside bars in question on the daily chart. (I am in a short position)

I think I gather from what you are saying is that as long as there is no close above 5200 on the chart below, then your bias would be for the trend continuation?

If this is what you are suggesting that would make sense to me. If so then this is probably the earliest possible warning of a potential reversal (from an IB). I shall have to have a proper look at your past posts when I can.

I am beginning to wonder if these particular (NZD/EUR) bars are caused by traders waiting for news before heavily committing?

Thanks

Jason

 

[timsk]

Hi Jason,
I won't comment on your post as I might muddy the waters further! As it happens, by chance, there's an example of what I was trying to say in your chart. So, here it is with annotation. Let me know if anything is unclear.
Tim.

 

[tomorton]

I think Tim might be referring to a hikkake pattern - worth Googling it Jason. I did some backtesting of hikkakes on multiple markets and found it worked pretty well even without confluence or other filters. But, it whipsaws many times out of 100, so tight and disciplined stops are vital.

 

[timsk]

I think Tim might be referring to a hikkake pattern - worth Googling it Jason. I did some backtesting of hikkakes on multiple markets and found it worked pretty well even without confluence or other filters. But, it whipsaws many times out of 100, so tight and disciplined stops are vital.

Hi Tom,
Yes indeed, I forgot it had a name.
Here's a link with a good definition: Trading The Hikkake Candlestick Pattern
What I've described is a more aggressive variation on the theme, as I look to enter on a breach of the high/low (low in the example chart above) of the failed breakout candle. According to the definition, the 'traditional' entry would be a breach of the high / low of the holding bar (HB). Get in early I say: more profit with a tighter stop!
Tim.

 

[Jason101]

Superb Tim and Tom,

Very clear now.
I can also see that the pin after the inside bar is a smashing place for it.

When I have put my son to bed I shall look at the links.

Thanks again
Jason