Are you looking to improve your trading skills and maximize your profits? One strategy that has gained popularity among traders is the inside candle strategy by PowerofStocks. This strategy is simple yet effective and can be used in any market. In this blog, we will explore the inside candle strategy, its characteristics, advantages, disadvantages, and tips for effective trading.
What is the Inside Candle Strategy?
The inside candle strategy is a trading technique that focuses on identifying a specific candlestick pattern known as an inside candle. An inside candle occurs when the current candle is engulfed by the previous candle, meaning the current candle has a lower high and higher low than the previous candle. This pattern indicates a pause in the market's trend and a potential reversal or continuation.
How to Identify an Inside Candle?
To identify an inside candle, you need to look for the following characteristics:
- The current candle's high and low are within the range of the previous candle's high and low.
- The current candle's body is smaller than the previous candle's body.
- The current candle's range is smaller than the previous candle's range.
Bullish Inside Candle
A bullish inside candle occurs when the current candle is engulfed by the previous candle, and the market is in a downtrend. This pattern indicates a potential reversal, and traders may look to buy when the price breaks above the inside candle's high. Note that first candle should be red and second candle should be green.
Bearish Inside Candle
A bearish inside candle occurs when the current candle is engulfed by the previous candle, and the market is in an uptrend. This pattern indicates a potential reversal, and traders may look to sell when the price breaks below the inside candle's low. Note that first candle should be green and second candle should be red.
How to Trade with Inside Candle Strategy?
To trade with the inside candle strategy, you need to wait for the price to break above or below the inside candle's high or low. This breakout indicates a potential continuation or reversal of the market's trend.
Trading with Bullish Inside Candle
When trading with a bullish inside candle, you may look to buy when the price breaks above the inside candle's high. To maximize your profits, you can set a stop loss below the inside candle's low and a take profit at the next resistance level.
Trading with Bearish Inside Candle
When trading with a bearish inside candle, you may look to sell when the price breaks below the inside candle's low. To minimize your losses, you can set a stop loss above the inside candle's high and a take profit at the next support level.
Pros and Cons of Inside Candle Strategy
- Simple and easy to understand
- Can be used in any market
- Can be combined with other indicators
- May give false signals in choppy or range-bound markets
- May require patience to wait for the breakout
- May require discipline to stick to the strategy
Tips for Effective Trading with Inside Candle Strategy
- Stay Disciplined - Like any trading strategy, it is crucial to stick to your plan and remain disciplined. Set your stop loss and take profit levels and avoid emotional decisions based on fear or greed. Remember to manage your risk and always trade with a clear head.
- Combine with Other Indicators - While the inside candle strategy is effective on its own, you can also combine it with other technical indicators to confirm your trade signals. For example, you may use moving averages or the Relative Strength Index (RSI) to identify the trend's strength and potential reversals.
- Practice and Patience - To master the inside candle strategy, you need to practice and develop your skills. Take the time to learn the basics and study charts to identify patterns. Patience is also crucial, as waiting for the breakout can take time. However, with practice and patience, you can improve your trading and maximize your profits.
In conclusion, the inside candle strategy is a simple yet effective trading technique that can help you identify potential reversals or continuations in any market. By identifying the inside candle and waiting for the breakout, you can make informed trading decisions and minimize your risks.
Remember to stay disciplined, combine with other indicators, and practice and develop your skills. With time and effort, you can master the art of trading with inside candle strategy and achieve your financial goals.
Q. What is inside candle or inside bar pattern?
A. An inside pattern is formed when the current day's candle is completely engulfed by the previous day's candle.
Q. How powerful is an inside bar candle?
A. An inside candle or bar is a highly powerful price pattern. If executed with proper risk management, it can yield significant returns.
Q. Is an inside candle bearish or bullish?
A. An inside candle can be both bullish and bearish. If the low of the engulfing candle is broken, it indicates a bearish setup, which can be exceptionally strong if it forms at the top of an uptrend. Similarly, if the high of the engulfing candle is broken, it signifies a bullish setup.
Q. What is the best time frame for inside candle setup?
A. For intraday trading, it is best to use a 15-minute or higher time frame. For swing trading or positional trading, the hourly, daily, or weekly time frame can be utilized.