Dual Inside Bar Breakout

breakout strategy dual inside day pull back setups Feb 08, 2021

'Inside days' refer to a candlestick pattern that forms after a stock price (or any other security) has experienced daily price ranges within the previous day's high-low range. That means the price has traded "inside" the upper and lower bounds of the previous trading session. It may also be known as "inside bars." Inside days usually indicate consolidation or lower price volatility.

As an inside bar indicates a contraction. Double inside bars do so with greater intensity. The range bound nature of this price action gets the market ready for a breakout. And the prospect of this breakout is attractive for traders. Therefore with careful analysis, you can spot some good trading setups with great risk-to-reward ratio.

Here is how the Dual Inside Bars can look like on a chart.

Let us go through some real chart examples to understand the approach that one can take to trade this particular setup. It will also help you understand the context.

Here is a daily chart of $ZM showing a bear trend. Staying with the overall market direction and the concept that trend is your friend - we will look for a bearish trade opportunity. 

Highlighted candles in the chart show the dual inside price bars. As the price broke the low of Parent bar (the price bar before the dual inside bars), you enter a short-trade. 

As the price broke down, it resumed the bearish trend. 

This approach to trading the Dual Inside bar breakout uses Stop orders. Place a Sell Stop order below the low of Parent bar. You can also place a Buy Stop order above the high of parent bar, but remember we are looking for bearish trades only to stay with the trend.

The breakout can be defined in two ways based on how aggressive you are towards the price.

  • Break of Parent bar's High or Low
  • A close above or below the previous bar

A dual inside bar setup can form in the middle of a trading range or as part of a trend pullback. It would be best to keep the broader market context in mind as you look to trade it.

Let us look at another example, but this time we will go with intraday time frame.

Below is a $GS 5-minute chart showing that the price broke out earlier in the day and making higher lows. A good candidate to look for a Pullback opportunity and get long based on a chart-based trading setup. 

At midday, the 5-min chart showed dual inside bar pattern after consolidating at day's high till that time. A good defined entry with limited risk. 

Put a buy-stop order above the high of parent bar. As the trade entry gets executed, place an initial stop-loss at the low of Parent bar. Once the price moves in your favor, raise the stop-loss.

Consecutive Inside price bars are not a common sight. Therefore, when they form - try to focus more on the reaction of market participants to them.

For Price Action Trading course members, you can use this as part of the pull-back setup discussed in 4th section of the course

Any questions, please reach out.


Ainee | iTradePrice

If you like Price Action based trading, and like to learn more about it to be able to spot trades on your own - please check the Price Action Trading course.

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