I am going to introduce you all to a very handy IB/OB strategy. All you need is a naked chart with only one indicator (Average Directional Movement Index, ADX).
What are IBs and OBs??
-IB or Inside Bar, is a bar which is completely within the range of the preceding bar, i.e. it has a higher low and lower high than the bar immediately before it or when it is has a lower high and an equal low and vice-versa.
-OB or Outside Bar, is a bar which has a higher high and a lower low than the bar immediately before it. A bar with a higher high and an equal low is also acceptable, and vice-versa. (For example, see post #40)
--------------------------------------------------------------------------------------------------
System Explained
Time frame: 1 hour
S/L: 30 pips (including Spread)
T/P: 40 pips + Spread
Currency Pair: GBP/USD (you can try other pairs, but I only work with this)
Ideal time for trades: 6:00am - 5:00pm GMT
ADX Indicator settings: Default for MT4 users.
ADX line - Yellow
+DI - Green Dotted -DI - Red Dotted
Provided an IB/OB has formed, to go:
Long
Wait till the next candle (confirmation candle) has fully formed and is a bull candle. Then, a good entry point would be when the 1st or 2nd candle following the confirmation candle moves 5 pips higher. Also, at this entry point ONE of the following criteria should be met:
- ADX line (Yellow line) above 40.
- +DI line (Green dotted) crosses above -DI line (Red dotted) & ADX line (Yellow line) curving upwards at entry.
Short
Wait till the next candle (confirmation candle) has fully formed and is a bear candle. Then, a good entry point would be when the 1st or 2nd candle following the confirmation candle moves 5 pips lower. Also, at this entry point ONE of the following criteria should be met:
- ADX line (Yellow line) above 40.
- -DI line (Red dotted) crosses above +DI line (Green dotted) & ADX line (Yellow line) curving upwards at entry.
EXCEPTION RULE (LONG): Only time you can enter the market without the confirmation candle is when an IB/OB has formed and during the formation of the confirmation candle, the ADX line is above 20. And +DI crosses above -DI. Look to enter 10 pips above the high of the IB/OB.
EXCEPTION RULE (SHORT): Only time you can enter the market without the confirmation candle is when an IB/OB has formed and during the formation of the confirmation candle, the ADX line is above 20. And -DI crosses above +DI. Look to enter 10 pips below the low of the IB/OB.
--------------------------------------------------------------------------------------------------
Pheww!! I know that was long, but once you read it a few times, it is not so difficult to follow.
Okay. Time for some examples of this system in action. I know my drawings aren't the best. :
This was a trade I made today:
http://img217.imageshack.us/img217/2...een1mn0.th.jpg
This was a trade I made on Friday:
http://img217.imageshack.us/img217/3...een2yn7.th.jpg
That about sums up this post. I am always looking to improve the system, so please feel free to give me your views on this system.
Thanks and I look forward to the replies!!