Once again we get to the strategy with amazing risk reward ratio (1:3 – 1:12). Many successful traders are using this forex strategy with minor changes, but similar success. It takes advantage of accumulation and distribution that can be found on any market.
Inside bar: Candle with its high and low within range of the body of previous candle.
IB signalize ongoing accumulation/distribution on lower time frames. High of the inside bar its considered upper border, low of the IB is considered lower border. We assume that after the breakout of one of the borders, group of the traders that initialized the breakout (bulls/bears) will continue to dominate and price will continue to move in the direction of breakout.
In the quite common situation of fake out, we will assume that group that have just lost will give up they intention and price will move to the direction opposing the fake out.
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Rules for the forex strategy:
Timeframe: above 15 min.
Currency pair: any
Once the inside bar closes, we place pending buy order on its high and pending sell order on its low.
Max/min is broken and pending order is triggered. We double order size to the opposite direction at opposite high/low of the candle.
A, We wait for take profit – easy.
B, It was a fake out. Our doubled order will be triggered. We wait for profit again.
C, Rare situation when second entry proves to be a fake out too (market might be ranging). We can choose to exit position once price reaches point of first entry or we can double the position size again (if our money management allows it).
Take profit: Either way we wait for profit that is 5 – 15 times bigger than range of signal candle (IB). Fundamentally , IB is great entry to catch substantial price movements.