Trading Inside Bars with a Stochastic

This is not a holy grail. Not that I need to tell you… :slight_smile:

Nor is this a new system. In fact, there was a thread previously on this forum dedicated to this approach but sadly it has disappeared in the mists of time. It did however have lots of useful information in it and I hope we can replicate that here. The original thread was titled something along the lines of “40-100 pips” and detailed a system which I believe previously came from a book. I’ve not managed to find what book it was in so cannot offer credit where it’s due but if you happen to know feel free to mention the author here.

Below are the rules of the system as I plan to use them (at the time of writing, I may well alter them in time as the market changes) but feel free to adapt them to your own taste.

Pair: Cable (GBP/USD)
Timeframe: 15 min
Hours: 7am - 4pm GMT (i.e. UK Session)
Stochastic setting: 8,3,3

Entry signal for longs:
Price and stochastics have previously been falling, fast stoch crosses slow stoch upwards below 35 and an inside bar is printed on the chart. Entry is on the break of the inside bar, stop at the other end of the bar. If price breaks the low of the inside bar before triggering the trade then it is abandoned.

Entry signal for shorts:
Shorts are the reverse formation. Price and stochastics have been rising, the fast stochastic crosses down under the slow stochastic which occurs above 65 and an IB closes on the chart. Entry is on the break of the low of the IB, stop at the high.

See attached chart for an example.

Exits:
At your discretion. I’ll be targeting a minimum 1R but feel free to backtest your own trade management ideas.

Feel free to join in below either with discussion on the original rules or indeed any amendments that you find personally fitting. I’ll be posting potential trades as and when I see them.


Interesting idea.

Question:

Does the inside bar have to be the opposite direction of the previous bar?

For example, If prices have been falling, then the stochs rise above 35 and a bearish candle is formed, then the next candle is a bullish inside candle, then, I understand, this is the bar to trade.

What if prices are falling, stochs then rise above 35, then a bullish candle forms, then the next bar is a bearish inside candle, does this constitute a signal or in order to buy you need a bearish candle, then an inside BULLISH candle?

Thanks

It seems like you can enter the trade as soon as the inside bar closes rather than waiting for the break of the inside bar, IF the stochs are sharply trending in the anticipated direction.
Also, you might also want to watch the 5/3/3 stochs because these give you a better look at the acceleration of the stochs.

Hope it helps.

The colour of the inside bar/candle is not important - as long as the stochastics are crossing (e.g. oversold and turning upwards below 35) we’re good to go.

That said, there’s no reason why you couldn’t add the colour of the candle as an additional filter if you wish to.

Is the “Inside Bar” considered “Inside” if it EQUALS the high or the low of the previous bar?

Or does the “Inside Bar” have to be LESS than the high AND the low of the previous bar to be considered “Inside”?

Thanks

I found a thread from last year that supposedly lists the name of the original author… 301 Moved Permanently

I can’t say how accurate that information is, only that the rumor going around was that this guy invented the system.

Supposedly the system was originally created by Jeff Wilde

btw if anyone googles him and checks his website they will see he promotes the black dog trading system. I found this system to suck big time and they did not honor my request for a refund for what amounts to nothing more than a moving average crossover system. Pure garbage, and after I asked for a refund they then banned me from there extremley lame forum which I was entitled to a lifetime membership to. Just FYI

This is in no way a reflection on the ib system presented here only one promoted on Jeff Wilde’s site.

Yeah, his website also looks a little shady to me…

So all you new guys learn it here for free. No one has a patent on IB’s and Stochs anyway. :slight_smile:

Seems like a pretty straightforward system, I will give it a try. Thanks.

Interesting idea, I’ll give it a spin on demo. I always like the IB idea.

I have trading master candles (IBs) off and on the past several weeks, but I was scalping off the 1m and 5m charts. I hadn’t even thought to look at any stochastics…

Don’t waste your time on this folks it’s a big loser.The guy (James) that started the thread about 4yrs ago got kicked off this site for selling his live trading room .He started quite a few threads with various systems,just another FX scammer.

OK i believe the rules set for this system is not good enough. IB and stoch are not important. They are just trigger for us to enter a trade. IB and stoch can cross and appear anywhere on a chart. We must identify good trades to take. Support and resistances must be consider on a chart. As this system operates on M15 whereby IB and stoch can appear numerous times, we must use SR and swing high/low (HH LH LL LH) to filter out the IB. On the first Technical Template thread, a member called Tonymand had posted very good examples on how he traded the IB setup on M15. :slight_smile:

Those are very good points you make there.

They’re simply another trigger or vehicle to get you into a trade.
If you execute every IB & Stochastic set up that appears on your 15 minute chart, you’ll get chopped to bits & your account will slowly bleed to death.

Like anything else, they require filters.
Support & resistance might be one such filter, triggering them [U]only[/U] when they set up in sync with the primary directional bias or trend might be another. Time of day (depending on the pair) could also prove beneficial.

I think with some higher time frame analysis and some discretion this is a pretty solid system. I’ll be trading nano’s next week with this and I’ll post results here.

I don’t blame you. It’s pretty much a mess on that pair of late. Far better opportunites available elsewhere.

What about the one that popped up on your chart at the start of the London session around 4580?

edit:
I just noticed your +/- 35 filter on the stochastics. I guess that early London short failed to marry up with that consideration.

I’m curious, why have you decided to include the above/below 35 rule on your stochs consideration, as opposed to triggering at the extreme of the stochastic hook when an inside bar reveals itself?

Do your testing results show a higher potential positive return when crossing 35, over & above that of the extreme hook?

Good spot Carly! I wasn’t around at that time and looking back didn’t spot it but you’re right, that was perfectly tradeable for 2-3R return.

It was a valid entry because the Stochastics crossed downwards ABOVE 65.

That’s my fault for not clearly explaining :slight_smile:
Normally the stochastic overbought and oversold lines are 80 and 20 respectively. However the original rules allowed for a little more flexibility in taking stochastic crosses that occur slightly outside those lines. This led to the new lines being OVER 65 for shorts and UNDER 35 for longs.

For longs, a cross nearer or below 20 is a better signal than on or near 35. Likewise for shorts, a cross above 80 is better than one between 65 and 80, but all signals are valid - just bear that in mind when considering to enter the trade.

I’ll update the first post to clarify this better.

Yes, I misread your rule regards the hook. Thanks for clarifying :slight_smile:

The London opening period of 01.45-03.00am est will throw up a good few valid signals on this type of technical play, especially when you’re seeking to take them on via pullbacks in strong directional moves.

The other two reasonable windows of opportunity to keep an eye on are the New York open & the Tokyo early afternoon leg (after their lunchtime break) around 10.00-11.30 pm est, especially on the gbp/usd, gbp/jpy, eurjpy & aud/jpy pairs.

I still have been too busy to trade this but I’m looking forward to trying it out and I’m keeping up with this thread.

Depends which rules you’re looking to break Matt.

I don’t see much available slack in the actual trigger.
You’ve got an inside bar keying off an extreme stochastic hook – that’s it.
So I’m guessing you’re looking at the set-up or pre-entry criteria?

The thread is barely a week old, so I’m assuming you haven’t been testing this thing out for very long?

Does it operate more efficiently in strong directional phases? (when legging in via pullbacks)….or is it better suited to ranging type cycles.

Is it more temperamental (or successful) on lower volume pairs or higher volume pairs?
How does it operate when legging in (& out) at zones of support & resistance?

Does the behavior of the type & range of the inside bar make a positive or negative impact on your set-up?

You might want to give it a little more time before looking to tweak it.