This is a price action trading strategy is called the daily inside bar with support and resistance level breakout forex trading strategy. The main idea of this forex strategy is really simple:

• an inside bar forms on the daily chart
• instead of trading using the usual inside bar trading strategy, you switch down to a much smaller timeframe like the 1 hour or the 30 minute timeframe
• and trade the breakouts of these support and resistance levels you see in the smaller timeframes before the actual breakout of the high or low of the inside bar happens on the daily timeframe.

In order words, you are trying to get into a trade much earlier before the price breaks the high or low of the daily inside bar.

In this way, you can:

• place a tight stop loss
• have a better risk:reward ratio
• if trade works out as planned, you are already in profit

The Trading Rules

#1:  On the daily chart, see if you can spot an inside bar. On this daily chart of USDJPY currency pair, you can see that an inside bar has formed:

#2:  When you see an inside bar has formed, then next thing you do is to switch to a 1 hour or 30 minute chart and wait for support and resistance levels to form. You are not to use the support and resistance levels found in the in timeframe of the inside bar.

Download this support and resistance indicator for easy identification of support and resistance levels on your chart in the 1 hour or 30 minute timeframe.

For Sell setups:

1. Ok, if a support level forms, then place a sell stop pending order 2  pips below the low of that support level.
2. place stop loss just  2 pips above the nearest swing high
3. Take profit: aim for 100-200 pips or 1:3 risk to reward

For Buy Setups:

1. if a resistance level forms, place a buy stop pending order 2 pips above it.
2. place stop loss 2 pips below the nearest swing low.
3. Set 100-200 pips profit target or 1:3 risk:reward

Here’s the chart viewed in 1 hour timeframe and the buy setup:

As you can see on this chart above:

• the grey highlighted box area is the inside bar.
• placing a buy stop order above that resistance level triggered the pending buy stop order and price went up and broke the high of the inside day bar.
• Placing a sell stop below the first support level (stop loss option 2) would not have triggered anything because price rose up from there and never came back down.
• now on stop loss placement, you see that stop loss option 1 is the nearest swing low but if its too close to your entry price, then you need to move it and place it on stop loss option 2 location.

3: Wait And See What Happens After Your Trade Is Activated…

Advantages Of The Daily Inside Bar With Support and Resistance Level Breakout System

1. really simple price action trading strategy.
2. even though some daily inside bars have really small range, there will be others that have large trading ranges which means that you most likely will have large stop loss distance if your trade inside bars the normal way. Using this technique I have shown here, you can reduced the stop loss distance and increase your risk to reward greatly in the process as well.
3. one trade a day system and this is really good because  it stops you from over trading. The less trades you do the better it is for you, really.
4. if you take profit targets are hit, you can make profits in hundreds of pips because the timeframe of trading  is not minutes but days! Its only the trade entries that are done in smaller timeframe.

Disadvantages Of The Daily Inside Bar With Support and Resistance Level Breakout Strategy

1. All forex trading strategies have weakness and expect the same on this daily inside bar system with support and resistance levels and one of its cons will the fact that sometimes you will have false breakouts of support and resistance levels in the 1 hour or 30 minute timeframe and this will result in price going int the other direction and taking out your stop loss.
2. stop loss can be quite too close and you may get stopped out prematurely.

Hope you learnt something new with this…please share 🙂 Thanks.