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Intraday Trading Strategies : No 3 | Inside Bar Scalping

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In this “Intraday trading strategies: No 3”, we will discuss Inside Bar Scalping strategy. This we can apply when we can expect prices to go up or down basis price action.

Concept

  1. It is a two-candle pattern, in which the Inside Bar is smaller and within the range (Difference between high and low of the candlestick) of the prior bar (Mother bar), i.e., the high of inside bar is lower than the mother bar’s high, and the low of inside bar is higher than the mother bar’s low. 
  1. Inside candle signifies that range of trading is narrowed or consolidation is happening and there is a probability that range will now expand going forward.
  1. Range expansion results in a breakout and trade is taken in the direction of breakout. Breakout means when any candle after inside candle pattern breaks the high or low of inside bar.

Intraday Trading Strategies Figure 1

Inside Bar Candle Scalping Strategy

Indicator used: Inside Bar by cma

Inside Bar Figure 2

There is one slight change in settings which you have to do in this indicator . Change the color of the inside candle to black so that you can identified it easily once pattern is formed on candlestick chart.

Inside Bar Figure 3

Entry rule

Step 1: We will take entry either in morning (9:30 am to 10:30 am) or in the evening (2 pm – 3 pm). This means you need to monitor the market for only 2 hours per day to take the entry and exit.

Step 2: Wait for this pattern to form on candlestick charts.

Step 3: Mark high and low of the inside bar.

Step 3: Wait for any 1 min bar closing above or below the high of the Inside bar. Let us name this candle as “breakout candle”

Step 4 : Take the trade at breakout candle with nearest ATM or ITM call

Inside Bar Figure 4
This is the chart of Bank Nifty in 1 min timeframe. Check how inside bar candle has an arrow and color is black. (This is because we have used the indicator to easily identify the inside candle). We will take the trade at breakout and exit as per exit rules mentioned later in the article. The prices moved 150 points without a good retracement giving a good risk reward to a trader. Source: Tradingview

Stop loss

Stop loss will be high or low of the inside bar depending on the direction where breakout has happened. If breakout has happened on upside, then low of inside bar will be SL and if breakout happened on the downside, then high of inside bar will be SL.

Important point : If SL is more than 100 points on Bank Nifty or more than 50 points on Nifty (on spot chart ), then we will not take that trade and again wait for inside bar to be formed and follow entry rules.

Inside Bar Figure 5
This is the chart of Bank Nifty in 1 min time frame. 1st trade (Orange arrow) : After the first inside bar candle is formed , the high is broken on 3rd candle where we will take upside trade. The low of the inside bar will be stop loss . In this case , stop loss is hit . 2nd trade ( Purple arrow ): After 1st trade is in loss , we will take 2nd trade on upside as breakout candle has closed above the high of inside bar. The trade has given us 1st and 2nd target. The Stop loss for this trade will be the low of the inside bar candle which is 17 points on spot chart.

 

Exit rule

Step 1: The first target will come at a risk reward of 1 . This means if risk is 30 points (On Spot chart ) then we will exit 50% of quantity once prices move 30 points in our direction on spot chart

Step 2: The SL of remaining 50% quantity will be moved to buying price. So, if SL hits on remaining 50% quantities, then there is no loss.

Step 3: We will exit remaining 50% quantities at risk reward of 2.

While this is a simple strategy with exit and entry rules , scalping should be done when you have some experience in intraday trading on a slightly higher timeframe ( 5mins or 15 mins).

 

 

 

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