What are Insider Bars and how to use them
A very warm welcome traders on this video on “Insider Bars”, which is quite an exciting one. I would like to walk you through the world of insider bars. They are very fascinating, and it is something that for some of you that follow us for a while, would know that I have dedicated a large part of my professional trading career to working with insider bars. There is a lot of research that myself and the team have done around them, we intend to help shortcut your journey into the financial markets. What I want to do today is to give you a very brief introduction and an overview to what these are all about.
What is an insider bar? For all the newbies that may not know, it is when a bar’s range is engulfed by the previous bar. You may have noticed that I have not noted the “opens” and the “closes” on these bars. That is because, at this point they are not really relevant. Even if I were to draw the open’s and closes’ it would not make any difference what so ever here. The reason is that insider bars are defined by their range. If you look at this range and call it “y” and you look at this other one and call it “x”, you can see that “y” is less than “x”. If that is the case, in any time frame, we would class them as insider bars. In a nutshell, this is what the mathematical definition is. Now, you may be wondering to yourself, what if it is just a pip or a point within would it be an insider bar? The truth is that, as long as this is true, and in the formula “y” is less than “x” then you have an insider bar.
Let me give you some interesting statistics on this. Now, for those of you that have watched the web previously, you probably would have seen this. Or if you have seen Thiru’s fantastic piece work on the four bar patterns and the 56 permutations you already know this number is true. But, always works going away and testing if we teach you a concept here on the market, it is always worth not just taking our word for it but go and take the data out of your broker and put it onto an excel spread sheet and test some of this stuff and see if it actually holds true. This is the way in which you can build your conviction very quickly. Moving on, there is a 10% chance of an insider bar setting up, and that is true on a 4-hour time frame, and daily time frame, and above.
Why do they setup? We now know the mathematical definition. If you have been in the market for any period of time and you have seen any training videos on insider bars; then often times the cliché thing is to go out there and believe me I have the outmost respect for all the trader training companies out there that are in this space to serve people, but I do hear the same cliché statements that are thrown out all the time. People would shout things like indecision, so people say that indecision is the root cause of the bar setting up. That is really only partly true. We have to understand at a deeper level what indecision is. If you understand it, from the perspective of the market makers methodology you have got to understand the psychology of how the market makers are working. Because, these are guys that are controlling the bigger money, these are the guys that are moving the money around and making the ranges of the bars, and it is important to understand their psychology. Insider bars can be called indecision, but it does not really mean anything to anyone. Actually, it is just a period of what we call accumulation. This is period of accumulation where market makers are very strategically gathering orders and to then manipulate the market. That is the next part of this presentation. I would like to show you how to capitalize on insider bars. For me to do this, I am going to go ahead and draw a chart of an insider bar. I will show you a couple ways in which we can use these. One of the is an insider bar of an already established uptrend. We are buying the market, we are going long. We got this kind of setup in the market, and suddenly you get an insider bar. How do we trade this? There are a couple of ways in which we can trade an insider bar, but our primary objective when trading with insider bars is to capitalize on the next period that is coming up. You see what we call a market compressional area already. But, what you want to do is to capitalize on the next period coming, which is going to be a manipulation spike. That is the next phase in the market makers methodology. First, cumulation then manipulation spike and finally profit release which we will probably cover in another video. Generally, after a market compression you see an expansion take place. If you think about the concept of a champagne bottle, and you pop the cork you would see inside the bottle over a period of time that the pressure has built up. When you pop the cork, then of course the champagne comes out at an aggressive pace. The cork pops out pretty fast because the pressure was built up, and then you get a sharp expansion. Same happens here in the market, we are looking to capitalize on that expansion. There are a couple of different ways that you can trade this. The first thing to do is to decide on an entry point. There is lots of different entry points you could use. There is the high of the previous bar to the inside bar, I just call it inside bar minus one. Or, you could use the insider bar’s high there. Whatever you decide, always keep it constant. Keep all of your parameters constant if you are testing anything and only vary one thing at a time. We did all of this research, and we found an entry point. What I wanted to explain to you is a way to capitalize an entry, and you need to look for a stop mechanism. That can be below of the previous bar to the insider bar. Then, you need a target point. Think about different ways you can exit the market for a target. Let’s say you may want to take two times your trade risk, that is the difference between your entry and your stop loss. If that that is range “z”, then up here you look for a target of 2 times “z” and you would look to get out of the market at that point then. Whatever your trade risk you double it and project it forward. What you really need to do is test the market to see what is going to be the optimal exit. Now, we already tested the market in multiple occasions and I came up with different permutations for an insider bar trading strategy which we later named profit expansion. Which is just superb, and I have many more presentations on our website and our blog. Specially in the trader’s toolbox video that is actually about this where we go into an element of detail. You should check that out and be sure to subscribe to our other videos. Our other videos will have a lot more content in and around these things that I am talking about that are alien or foreign to you. Then certainly you should subscribe to our YouTube channel, because you can catch all of the other opportunities with what is happening with what we are doing on real time.
There is lots of ways in which you can do this. But, I wanted to tell say is that there is a key tip that I wanted to give you. If you are looking for an exit in the market and catching an insider bar and catching the manipulation spike. What I would strongly recommend for you is not to stay in the trade too long. Perhaps, maybe only stay in the trade four hours, twelve hours, twenty-four hours and not too much longer than that. Because, in the accumulation period that market has obviously accumulated, and the manipulation is short and quite sharp. That is what our research has shown us. We tend to exit the market, 70-75% of the times, on the next day itself so within 24 hours we will be out. Think about ways in which you could do that with insider bars. Do not stay in the trade longer than you need to. Remember that your objective is to capture the manipulation spike.
That is an overview for you on insider bars, a lot more details on the trader’s toolbox series where we have actually gone into depth on insider bars and I would have shown you five types of exits on insider bars that we came up with as a team, which we went on to test. Make sure you subscribe.
That is all from me today on time zones until the next time. As we always say; stay disciplined, follow your trading plan, and keep Trading Like a Master.