Inside bar: level breakout, retest as support and a 30% daily ATR target

Idea in brief

Christoph Radecker, founder of the prop firm IQ Capital, describes the approach as simple breakouts of support and resistance levels. The process runs top-down. On the daily chart the author looks for an inside bar, that is, a candle inside the range of the previous one. For the author this is a sign that the market is consolidating and looking for balance. Then, on the 30-minute chart, the author marks a level that price has tested two or three times and looks left. If there is little old structure above the level, the breakout has a better chance of going through.

When price breaks resistance, the author waits for a return to it from above. Resistance has become support, and the retest is the entry. The author enters quickly, on the 5-minute chart. The stop goes beyond the nearest swing. The first target is 30% of the average daily range based on daily ATR. If the market does not move in the trade's direction, the author reduces the position. If it moves with momentum, the author adds.

The author trades this way on gold, bitcoin, Ethereum and indices and believes the approach suits any market.

Why it might work

The author's explanation. An inside bar shows that the market is digesting the previous move. A level with several touches means sellers were sitting there. If buyers have taken them out and price has held above the level on the return, there are fewer sellers above price, and an upward drift begins. Empty space to the left means there are few old orders on the way to the target.

The author set the target as a fraction of daily ATR to avoid fitting it. The author calls 30% a safe bet and considers 34% or 38% over-optimization under uncertainty. A breakout, according to the author, is good for fast feedback: if the idea is right, the market moves at once, and if not, that also becomes clear quickly.

This is the author's experience, and no statistics are given. Whether the day will trend or consolidate is decided by observation, without a formula. We have not tested these explanations.

Rules

Context: daily inside bar

// daily bars, decision before the trading day starts
InsideBar = High[1] < High[2] AND Low[1] > Low[2]        // author: inside bar on the daily or weekly chart
ADR       = ATR(14) of daily bars at yesterday's close   // author: ATR on the daily chart; length 14 by Finetiq

Level

Res     = High[1] of the daily inside bar                 // Finetiq: we take the inside bar high as resistance
ZoneTol = 0.05 * ADR                                      // Finetiq

// touches on 30-minute bars over the last 5 days          (author: look at 30 minutes and higher)
SwingHigh(k) = High[k] above the High of two bars to the left and two to the right   // Finetiq
Touches = number of SwingHigh with |High - Res| <= ZoneTol
LevelOK = Touches >= 2                                    // author: two or three touches are required

// "look left": little old structure above the level      (author)
RoomLeft = among the 20 daily bars before the inside bar, no more than 2
           have a range reaching into the zone from Res to Res + 0.3 * ADR   // Finetiq

Breakout and entry on the retest (long, short mirrored)

// 5-minute bars, the day after the inside bar
Break  = Close > Res + ZoneTol                            // Finetiq: breakout on a close with a margin
Retest = a bar after Break with Low <= Res + ZoneTol AND Close > Res   // author: broken resistance holds
Fail   = Close < Res - ZoneTol                            // Finetiq: level not held, setup cancelled

IF InsideBar AND LevelOK AND RoomLeft AND Retest AND NOT Fail
    BUY AT NEXT BAR OPEN                                  // author enters quickly; Finetiq: at market
// Finetiq: one attempt per level per day

Stop, target and ratio filter

StopLoss = last 5-minute SwingLow below the entry - 1 tick    // author: nearest swing, not derived from the target
Target   = EntryPrice + 0.30 * ADR                            // author: first target 30% of the daily range
IF (Target - EntryPrice) < 1.5 * (EntryPrice - StopLoss) THEN skip
// Finetiq: the author talks about 1.5-2 to 1 and does not insist on 2:1 at any cost
Risk = 0.15-0.2% of capital per trade                         // author

Management

// author: a quick small profit-take to build the position
AT EntryPrice + 0.05 * ADR: EXIT 1/3 LIMIT        // Finetiq: for the author, 6 points of gold with ADR around 120

// author: on a reaction in the trade's direction, the stop moves quickly
IF High >= EntryPrice + 0.15 * ADR THEN StopLoss = EntryPrice      // Finetiq: half the way to the target

// author: no reaction, no point holding full size under a full stop
IF BarsSinceEntry >= 12 AND highest price since entry < EntryPrice + 0.1 * ADR
    EXIT half of the remainder AT NEXT BAR OPEN   // Finetiq: 12 bars = 1 hour

AT Target: EXIT remainder LIMIT                   // Finetiq
EXIT everything at the end of the trading day     // Finetiq

Variant B. Adding to an A+ trade

// author: add only if the level holds and momentum has started
IF StopLoss already at breakeven
   AND a 5-minute bar closed above the highest price since entry
   AND Close - Open >= 0.5 * ATR(14) of 5-minute bars       // Finetiq: proxy for "momentum"
    BUY 1/2 of the original size AT NEXT BAR OPEN            // Finetiq
StopLoss of the whole position = last 5-minute SwingLow      // Finetiq
// no more than two adds; exit on a close below the last SwingLow   // Finetiq

Parameters

What to test

1. Is the inside bar needed. The same retest entries on days after an inside bar and on all other days. If there is no difference, the daily context can be dropped.
2. Target neighborhood. 20%, 25%, 30%, 35% and 40% of ADR. The author says 30% was not fitted. If neighboring values give similar results, that is a good sign. If only 30% wins, it is a coincidence.
3. Retest versus breakout. A stop order on the breakout itself versus an entry on the return to the level. Some strong breakouts never come back. Count how many trades and how much profit waiting for a retest costs.
4. "Look left". Split trades into those with empty space above the level and those with old structure nearby. The author calls this the golden rule.
5. Swing stop versus ATR stop. The nearest 5-minute swing versus 0.15 and 0.25 ADR. Look at how many trades the ratio filter removes in each variant.
6. Management. A plain 30% ADR target versus the version with a quick profit-take, breakeven and time-based reduction. The author calls this management discretionary and imperfect.
7. Relative strength. On a BTC and ETH pair or ES and NQ, take the setup only on the instrument that did not make a new recent low when the other one did. This is how the author chose ETH over BTC.

Platform notes

TradingView (Pine Script)

• The author reads ATR on TradingView, and ta.atr uses Wilder smoothing. With the same length, the target will match the author's chart.
• Inside bar and ATR on a 5-minute chart: request.security(syminfo.tickerid, "D", high[1], lookahead = barmerge.lookahead_on). Without [1], today's unfinished daily bar gets into the condition.
• What counts as a day depends on the symbol's session. The COMEX gold session starts the evening before, while crypto days are counted in UTC. An inside bar on different data falls on different days.
• Stop and target within one 5-minute candle: use_bar_magnifier = true on paid plans.

MultiCharts and TradeStation (EasyLanguage)

• AvgTrueRange(14) is a simple average of TrueRange. The 30% ADR target will differ from the author's chart, especially after volatility spikes. Calculate Wilder smoothing yourself.
• The daily stream is added as Data2, the 30-minute one as Data3: High of Data2[1].
• In TradeStation, a futures daily bar closes at the settlement, a 1440-minute bar at the last trade. An inside bar may come out differently on the two bar types. Test and trade on the same type.
• A stop as a price (Sell next bar at StopLevel stop) lives for one bar, so send it again on every bar.

MetaTrader 5 (MQL5)

• iATR is a simple average of TR. To match the author, calculate the Wilder version yourself.
• A CFD daily bar is built on the broker's server time. For gold and crypto these are different days than on COMEX or in UTC, and short Sunday bars break the inside bar condition.
• Take D1 and M30 values from closed bars (shift 1).
• Calculate the position size from 0.15-0.2% risk via SYMBOL_TRADE_TICK_VALUE and SYMBOL_TRADE_TICK_SIZE, rounding to SYMBOL_VOLUME_STEP. On a small account the minimum lot may not allow such a small risk.

Where the idea can break

• The author trades discretionarily. Which level to draw, when the market wants to consolidate, where the momentum is, when to reduce: the author decides all of this by the situation. The card sets it with numbers, and a mechanical version can differ a lot from the author's trading.
• There are no statistics for the setup. The gold and ETH examples were shown after the fact and selected by the author.
• Using the inside bar high as the level is our choice. In the author's example, the zone is drawn by touches and does not necessarily coincide with the day's high.
• A nearest-swing stop on 5 minutes is sometimes very short and sometimes very long. With the ratio filter some trades disappear, without it the reward-to-risk ratio will jump around.
• The author uses 0.15-0.2% risk per trade on prop accounts. The video was released by the author's own prop firm and contains an ad for a challenge.
• According to the author, four days out of five are profitable, but a losing day is bigger than a usual profitable one. Such a profile is especially sensitive to position size.