Inside Bar Trading is very simple, and used by some professional traders who are busy and need to make some quick profit.

Inside Bar Trading is a very easy way to get aquainted to trading any market. It does not even have to be stocks, but anything with a chart.

You do not even need to use bar charts if you do not like bar charts. You can easily use candle sticks, even lines. You just need to know the open and close of the previous bar on any time frame to put it to use.

Inside Bar Trading is the measurement of the previous bar, you look at your chart and look for bars or candle sticks that have engulfed recent bars. If the previous bar that just closed is within the measurement of the previous bar before that, it's inside of it. Hence: Inside Bar.

Let's take a look at our Inside Bar Trading image:

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Click to enlarge the Inside Bar image into its own window

The beauty of Inside Bars are that it's for the most part, self explanatory.

If you need a refresher about what you are looking at, or completely new lets take a walk with the image and talk about it.

The theory behind Inside Bar Trading is that price movement comes into a consolidation period. Or as i enjoy calling it, price compression.

No matter how you want to call it, price cannot be within a range forever. The market tends to follow through after a break of resistance and if you are ready you can jump on the train and ride along with the market.

The market is never wrong. Traders every day are wrong, so if you are on the side of the market you have an innate advantage over traders who try to force their trades onto the market.

Perhaps the best thing about Inside Bars are that you are not trying to forecast where the market is heading. You already know where the market is heading. And it is usually a good idea to go where the market is going.

The chart is by TD Ameritrade's Thinkorswim platform, of Ford.

Let's go over some points of the Inside Bar image:

1. Sell signal. Not a very good inside bar signal.
2. Sell signal. Good inside bar signal.
3. Sell signal, not a good signal, I would had bailed at breaking previous high. But, it did end profitable.
4. Buy signal. Not immediately good, but breaking previous high hurled it.
5. Buy signal. You be the judge, this was a great signal.
6. Sell signal. #7 immediately occurs right after this one.
7. Sell signal. Obvious large selling pressure is building up, this stock wants to go down. Good signal.
8. Buy signal. The market did exactly what it was telling you, it wanted to go down. Now, it's going back up.
9. Buy signal. Not a good signal, I will talk about this below.
10. Sell signal. Like I said above, not a good signal. I will talk about this below.
11. Buy signal. Ford stock is being bullish, good signal, recently broke a high.
12. Buy signal. After some consolidation from #11 it's ready to go higher, good signal.
13. Sell signal. A good inside bar signal.
14. Sell signal. Potentially profitable signal, depends how you played it. I will discuss this one below.
15. Buy signal. Now we are at #15, what do you think?

Let's discuss some of the things we have gone over in the chart.

I want to point out #9 and #10 to start with. These two Inside Bar trades were not profitable trades, and if someone took these two most likely they would of had profit losses.

Now I will tell you how you could have avoided these two bad trades.

Beginning with #9 someone who has a grasp of basic chart patterns would have I hope recognized that the Ford chart was entering a triangle pattern, and if you paid attention to the higher lows and lower highs this would of helped you identify that within this trading range there is some consolidation going on.

Allow me to illustrate just what I am talking about in visual means:

Click to enlarge the Inside Bar image into its own window

Open, that image up and take a look at what I have done in the image. You can see that the stock price of Ford on the daily chart was gradually consolidating. This can wreck havoc on Inside Bar Trading.

Usually, it is best to trade Inside Bars to the direction of the overall trend (Note: #9 was an erroneous buy signal). Yes, this may eat into potential profits. But trading in the direction of the overall trend has its own advantage, and if you want to trade as safe as you can, I suggest trading towards the trend.

Trading is all about seizing the advantage of probability. While you have a probability in your corner, you are better off than otherwise

You should always swallow your pride and as soon as the trade has gone beyond the main Inside Bar in the opposite direction from your original buy or sell signal, close the trade.

Particularly bad would be to hold onto a sell signal beyond the original sell signal when the Ford stock has penetrated northward past the main Inside Bar, and why? Because Ford has been bullish for some time, probability is telling us that currently Ford has higher odds of going north, than south to begin with.

The last important part on this chart I said I would discuss is #14. There are five bars on this Inside Bar pattern. You potentially could of began playing this signal on bar number four of the Inside Bar pattern. You would of had a couple extra days to squeeze profit out of this sell signal.

But with regards to #14 again, if you began playing this pattern to its full extent and traded after the break of the main Inside Bar it would had not left much room at all to profit from

Good trading is about putting probability on your side. Probability is not always going to equate into assured profits, but potential success is in your favor rather than not.

Fun Fact: If you held onto every Inside Bar buy signal, you would have made a profit each and every time in the long run. Why? Ford has a bullish trend, and it's not easy to reduce momentum of a stock that has decided where it wants to go. Almost always it has to trade sideways before it goes the other way.

I hope you enjoyed this as much as I did writing it, and learned something. If I made you think just a little bit, this has been a success for me.

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