The only difference between the inside bar and the double inside bar is the the double inside bar has two inside bars that form next to each other.
Which means that the 2nd inside bar forms inside the shadow of the previous inside bar. So essentially what you have here is a engulfing pattern formation of inside bars!
See chart below:
What Causes Double Inside Bars to Form?
When inside bars form, they indicate a lack of volatility. It can also mean that not much trading volume is going on during that period that an inside bar forms.
What this can mean is that traders may be sitting on the sides and just waiting and watching to see which direction price goes before jumping in and taking positions.
How To Trade The Double Inside Bar Formation
Trading the double inside bar pattern is really straight forward. You are anticipating a breakout either up or down so all you have to do is to place two pending stop orders above the high/low of the FIRST inside bar:
- place a sell stop pending order 2-3 pips under the low of first inside bar. And also place a buy stop pending order 2-3 pips above the high of the first inside bar.
- Your stop loss for a sell stop order should be placed at least 3-5 pips above the high of the first inside bar. Similarly, your stop loss for a buy stop pending order should be placed at least 3-5 pips below the low of the first inside bar.
- Set your take profit targets as 3 times what you risked or look for previous swing highs/lows and use them as your take profit target levels.
- Use trailing stops to lock in profit as trade moves in your favour.
Advantages of The Double Inside Bar Forex Trading Strategy
- It is a simple price action trading system.
- No other indicators are required to confuse you.
- potential for explosive profits
- risk to reward ratio looks really good.
Disadvantages of The Double Inside Bar Forex Trading Strategy
- its not the holy grail forex trading system, it has its weakness.
- trading in much smaller timeframes from 1 minute up to 30 minutes may not work well.
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