The ‘combo strategy’ is a highly effective strategy where price forms a reversal trigger signal and immediately follows this up with an inside bar.
The candle formations would be something like a Pin Bar, then Inside Bar. Or an Engulfing Bar + Inside Bar etc,.
Here is a basic example of what a ‘Combo Setup’ would look like with a bearish pin bar, followed up with an inside bar;
The ‘Combo’ Setup
Whilst the price action combo setup is super simple, it also has a solid price action order base from which to trade it from.
The combo setup is reliant on the trigger setup, or the high probability reversal setup. If you have a weak reversal setup, for example a rubbish engulfing bar, then adding an inside bar on top of this is just going to be adding fuel to an already terrible setup.
As explained above briefly, behind our charts are the buyers and sellers pushing price higher and lower. With the reversal trigger signals, for example a bearish pin bar, price would move higher into the level it is rejecting and then snap lower to form the pin bar.
See Pin Bar below:
Often however, after having formed this pin bar, price doesn’t just move lower straight away like a lot of traders expect, OR want it to. Regularly straight after the pin bar, the next candle will be an inside bar. This is a good thing as it can often show the market is preparing to change momentum.
For price to reverse from the resistance that the bearish pin bar is rejecting, the bears have to gain control over the whole market. If price can break the lows of the inside bar and trigger, that could be the trigger that the market needs to make a new move lower.
See Pin Bar + Inside Bar Combo Setup below:
Below is a chart example showing;
1st: a Pin Bar + Inside Bar Combo setup
2nd: ‘Almost a Bullish Engulfing Bar (BUEB) + Inside Bar (IB) Combo
3rd: Bearish Engulfing Bar (BEEB) + Inside Bar Combo
You are often going to find that you will place your entry and price will then begin to start winding up tighter and tighter.
This can often be a really good thing, depending of course on what side of the fence you’re on and which way you’re viewing the price action.
A wind up of price action super tight normally means that a breakout is on its way. The tighter and tighter it winds up, the bigger and more aggressive the breakout tends to be when it does end up eventually occurring.
Whilst not always happening in this way, the more compressed a market gets, we often find that as price builds, so does the pressure on the eventual breakout when it happens.
A chart of how price winds up and then explodes with a breakout is below. Note; the inside bars within this winding up period;
This is important for you to not only know and note, but to have written in your trading plan and rules. For example, if you have you order set to enter, and price has not been entered for 10 days, do you let price continue?
If your entry orders are still open after 10 days, but price has not been past your stop point, at what point do you cancel the entry order? These are things you cannot just make up as you go along.
It is super important with this strategy that you always take the break of the lows and do not try and take short cuts. When you try and take short cuts you always get your always get burnt.
There are no free lunches, and those who commit and are willing to go the extra yards always seem to have more luck for some reason.
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