The Forex Chronicles

2 Inside Bar Price Breakouts on Brent Crude in May and June

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Recent Price Action

As an investor in a few oil stocks, I tend to watch the oil price very closely, and it is fair to say that the price of this commodity has been very volatile so far in 2019.

The price of Brent crude fell sharply in the last few months of 2018, but it has since rallied from a low of just over $50 to around $75 at the end of April.

After that, it then fell back towards $60 as we entered the summer, but it has once again bounced back as a result of renewed tensions in the middle east.

Inside Bar Breakouts

Ordinarily it would be very difficult to predict these large price swings, but one way you can potentially profit from these price movements is to wait for inside bar breakouts.

These occur when you have a large candle on the daily chart, followed by three or more candles / bars (the more the better) that all trade within the range of the initial candle, and then a breakout candle where the price closes outside the range of this candle.

These breakouts are generally very reliable and will often have a lot of momentum behind them, and there have been two of these in the last month alone.

Brent Crude Inside Bar Breakouts - May and June 2019

As you can see from the chart above, the first one occurred at the end of last month. On 23 May the price dropped below the 200-day moving average, which is significant in itself, but then the price traded within the range of this strong downward candle on five subsequent days (if you include the Sunday trading session).

So this was a good period of consolidation, and when the price of Brent crude subsequently closed below the range of the initial candle one week later, this would have been a great opportunity to open a short position.

In this particular instance the price went from around $64.62 to a low of around $59.27. Therefore it would have been a very profitable trade.

The second inside bar breakout has occurred more recently, and is still in progress as I write this article. After dropping back to the $60 level, there was a strong bullish candle on 13 June followed by three inside bars.

On this occasion it took a while for the price to close outside the range of the initial candle, but there was eventually a strong bullish candle that confirmed the recovery, and the price did move over 100 points in profit (and is still in progress) after closing at around $64 on the breakout.

Closing Comments

Once again this proves the overall effectiveness of inside bar breakouts, and as I have demonstrated in several posts previously, these breakouts are worth looking out for on the daily charts of many different markets, whether it’s currencies, commodities or cryptocurrencies, for example.

Generally speaking, the longer the price trades within the range of the initial set-up bar, the stronger the breakout. You just need to be patient enough to wait for them to occur because they don’t happen that often.

Bitcoin Surges Above $8000 After Inside Bar Breakout

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Previous Price Action

For a long while, it looked like the price of Bitcoin was just going to continue to trade in a sideways trading range between $3500 and $4000.

However there was a large breakout candle on 2 April, and in the following days there was enough momentum to push the price above the key $5000 level.

The price then stabilized between $5000 and $5600 for the next three weeks or so and it looked like this was going to be the new trading range in the following days and weeks.

Inside Bar

On 25 April, however, there was quite a large bearish candle on the daily chart, which propelled the price back towards $5000, and it looked like it could be heading a lot lower if it could close below this level.

As it turned out, the downward breakout failed to materialise and this actually became an inside bar because the trading range of the next seven days all fell within the high and low of this initial inside bar.

This is always a good thing to see on the daily chart because it is often the pre-cursor to a large breakout either upwards or downwards, and that’s exactly what happened here.

Upward Price Breakout

As you can see in the chart below, the price eventually broke out of this trading range (and closed above the high of the inside bar) on 3 May at $5689, and this would have been a great time to enter a long position because the price has since surged to more than $8000 thanks to the upwards momentum of this breakout.

Bitcoin Inside Bar Breakout - April May 2019

This would have represented a gain of nearly 50% for those people who held on to this position until now, but $6000 was breached fairly easily and a gain of 10-20% was still easily achievable once the momentum started building.

Final Thoughts

The point I want to get across is that as I have highlighted many times before on this site, these inside bar breakouts are always worth looking out for on the daily price charts because they can be extremely profitable.

You will generally find that the longer the price trades within the range of the initial set-up bar, also referred to as an inside bar, the more likely it is that there will be a strong breakout when the price closes outside of this range, and that was exactly the case here.

In this instance the price of Bitcoin traded within the range of the initial set-up bar for seven consecutive days, and so it was almost inevitable that the price would continue to rise strongly once the price closed outside of this range.

The problem is that these inside bars don’t necessarily occur that often, but if you monitor lots of different currency pairs, and a range of cryptocurrencies, indices and commodities, you should find a few really good set-ups every month.

USD/JPY May Be Poised for an Inside Bar Breakout – February 2019

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Price Action

The US dollar has been very strong in recent weeks, as you can see for yourself if you look at the charts of the various dollar pairs.

However in this article I want to take a closer look at the USD/JPY pair in particular because although this pair is also trading higher, and is now close to the 110 level, it could also be gearing itself for a breakout.

It is not yet clear which direction this breakout will be, but we have had a lot of sideways price action in recent days, and the exponential moving averages are starting to converge on the daily chart and are all trading very close to each other (which often happens before a significant breakout):

USDJPY Inside Bar Formation - February 2019

Inside Bar Formation

Most importantly of all, you can see from the chart above that we now have an inside bar formation where the last 5 candles (6 if you include the Sunday candle) are all trading within the range of the large candle from last Monday (indicated by the two black lines).

This is one of the main things I like to look for when trying to identify possible breakouts because the longer the price trades within the range of a previous candle, the more likely it is for the price to break strongly upwards or downwards when it eventually closes outside of this range.

Trading Opportunity

Subsequently, it might be worth watching the price of the USD/JPY over the coming days to see if it can break decisively out of this range. The high from the initial set-up candle is 110.16 and the low is 109.44, so these are the key levels to look out for.

Some people like to jump into a trade as soon as the price moves above or below the high or the low, but I personally think it is better to wait for the daily candle to close to see if it actually closes outside of the range. Then it is far more likely to be a confirmed breakout in my experience.

If it breaks higher, then the 200-day moving average is an obvious price target, which currently stands at 111, but I wouldn’t be at all surprised to see the price continue to break above this moving average to around 112.

If, on the other hand, it breaks lower, then I would expect it to test its recent low from last month, which is about 108.5, and possibly go as low as 108, but we will just have to wait and see what happens.

Please bear in mind that these are just my own thoughts and opinions, and it doesn’t represent professional financial or trading advice in any way.

Crude Oil’s Price Move Highlights Profitability of Inside Bar Breakouts

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Inside Bar Breakouts

I have long argued that inside bar breakouts are some of the easiest and most predictable breakouts that you can trade.

All you need to do is wait for quite a large candle on the daily chart (or higher), and wait for a series of consecutive inside bars that all trade within the range of this initial candle.

Then once the price eventually closes above or below the initial candle, you can then enter a trade in the same direction, and profit from the momentum of the breakout.

Real Life Example – US Crude Oil

To demonstrate the effectiveness of this simple trading strategy, here is the daily chart of US crude oil that I posted on this website at the start of the month:

US Crude Oil Inside Bars - 1 January 2019

….. and this is what happened when the price finally closed outside of the range of the initial set-up candle:

US Crude Oil Breakout - January 2019

As you can see, there was initially a false breakout where the price moved above but failed to close above the initial candle, followed by a secondary breakout where the price did indeed close above this candle, and this would have been the time to enter a long position.

Once this happened, the price moved strongly higher and went straight to $50, which would have been a natural exit price, but it actually had the momentum to keep on moving higher, and currently stands at around $52.

It could potentially go higher as well because it is still quite a long way below both the 100 and the 200-day moving averages, as shown on the chart above.

Final Thoughts

So hopefully you can see that you don’t necessarily need to use lots of fancy indicators to come up with a winning strategy.

The simplest strategies are often the most profitable, and I always found that inside bar breakouts in particular are generally some of the most predictable and profitable breakouts that you can trade.

The only real drawback is that they don’t occur all that often. So you may have to wait patiently for a really good set-up to occur across all of the major forex pairs and commodities. Alternatively you can apply this strategy to some of the other markets that you like to trade, such as cryptocurrencies or ETFs, for example.

Possible Inside Bar Breakout On GBP/JPY Pair – 29 November 2018

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Introduction

The GBP pairs have been almost impossible to trade just recently because of the ongoing uncertainties surrounding Brexit, which is why it is sometimes a good idea to just wait for a breakout from an established trading range.

Therefore with that in mind, it may be worth taking a look at the GBP/JPY pair right now because there has recently been a series of four consecutive inside bars (five if you include Sunday’s trading session).

So in other words, after the large candlestick from last Thursday, the price has traded within the range of this candle every day since then, as you can see in the chart below:

GBPJPY Inside Bars - 29 November 2018

Why is This Significant?

These inside bars highlight a period of uncertainty because the price has failed to break above or below the respective high and low of this candle since then.

In addition, you will also notice that the EMAs that I like to use (20, 50, 100 and 200) are all closely bunched together, which often occurs before a breakout.

Therefore when the price does eventually break above or below this initial candle from last Thursday, there may well be a decent breakout.

Trading Opportunity

With four consecutive inside bars, the likelihood of a major breakout continues to grow, so it might be a good strategy to enter a long order a few pips above the high of the initial candle (14595.9), and enter a short order a few pips below the low of this candle (14426.5) in case there is a downward breakout.

There is the potential for the price to break through the EMA (200) if there is an upwards breakout, and this may be a good place to close half the position, while the price could test the recent lows at around 142.50 if there is a downward breakout.

However, as always, I am not offering any trading advice and am not recommending any trades. These are just my own personal views and observations.