IDF Play - Fading a daily inside bar
STATEMENT
This publication aim to explain as detailed as possible the IDF play strategy.
To do so, we will analyse
USDCAD chart and the inside bar that was printed on 22-04-2021.
RATIONALE
Why trading the failure of an inside bar? It's commonly known that retail traders will identify an inside bar as a reversal candle. Institutions and big players know how retail traders play these kind of candles and will most likely fade them.
Also, before directly trading this technique, please backtest it through different time period (what could have workd in 2020 might not work anymore in 2021 as it's well known that market behaviour can change) and different currencies (an high strike rate with EURUSD doesn't mean it will work with GPBUSD for example). I would consider it as an edge it win rate is above 60% adn the ratio is in average above 1% ROI.
INSIDE BAR
What's an inside bar? It is a candle in which the high to low range is smaller than the prior candle; i.e., the high is lower than the previous bar's high, and the low is higher than the previous bar's low.
THE PLAY
THE RESULT
This publication aim to explain as detailed as possible the IDF play strategy.
To do so, we will analyse
USDCAD chart and the inside bar that was printed on 22-04-2021.RATIONALE
Why trading the failure of an inside bar? It's commonly known that retail traders will identify an inside bar as a reversal candle. Institutions and big players know how retail traders play these kind of candles and will most likely fade them.
Also, before directly trading this technique, please backtest it through different time period (what could have workd in 2020 might not work anymore in 2021 as it's well known that market behaviour can change) and different currencies (an high strike rate with EURUSD doesn't mean it will work with GPBUSD for example). I would consider it as an edge it win rate is above 60% adn the ratio is in average above 1% ROI.
INSIDE BAR
What's an inside bar? It is a candle in which the high to low range is smaller than the prior candle; i.e., the high is lower than the previous bar's high, and the low is higher than the previous bar's low.
THE PLAY
- First of all, we identify an inside bar on the daily time frame:
- In this particular trade, our inside bar can also be identified as a Doji candle (another reversal candle), reinforcing the retail trader's sentiment that we are about to witness a trend reversal (meaning that most of them will be placing an order to go long with a stop loss below the wick of the candle).
- Additionally, if we check the prior day we notice that price printed an Outside bar (or Engulfing candle), confirming our bias that we are most likely to find opportunities to go short.
- Next step is to go down to the hourly time frame and look for a significant leven from which we can short.
- So far in below screenshot we have identify a significant support level where price was rejected 6 times. As we would like to find an opportunity to go short, we need to wait for the price to break through this level.
- Now, as we have short bias, we need to wait for the price to break through that support level, so we can consider placing an order (sell limit).
- With 6 touches on the support level, market is telling us that we have a strong level, having saying that, we won't need any further confluence to look for entry after the breakout.
- After breakout is confirmed (1) and there is no an immediate pullback (few candles between breakout and pullback to significant level) we can place our order (in this case, sell limit).
- We do not place our stop loss above the latest lower high; we play it safe and place it at 1.25104 (the prior lower high).
- Take profit is placed at a weekly level we have identified we do believe can represent a valid target.
THE RESULT
כתב ויתור
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