Inside Day Breakout (IDB) Setup

Inside Day Breakout (IDB) is another setup that I use to affectively take advantage of explosive moves that occur after periods of congestion. I usually like to use these setups in the direction of the trend, but tend to trade them in both directions in choppy market environments.

Basically an IDB occurs when on days where price action occurs inside another range. This happens when buyers and sellers fight for control, both having equal strength. Once the market breaks out of the range a victor is found, this usually results in an explosive move in that direction.

IDB can occur over several days and don’t require price to consolidate in one day’s price range. In the chart above 3 days IDB's are occur and usually demonstrate more follow through and stronger moves than the 2 day IDB's. This is due to the extended battle between buyers and sellers. Think of IDB's this way, imagine a can of coke that you shake violently for a period of time, the longer you shake the stronger the burst once opened.

My entries in IDB's are a five minute candle close above yesterdays high or low with my stop back inside yesterdays range. I usually trail the setup depending on what is demonstrated on the tape, if I see an aggressive tape I give the trade more room by trailing it through the 10-20 SMA's on the 5 minute chart. However, should the tape slow down or should the market environments change, I book into momentum.

Pretty simple setup, that works brilliantly in the hands of a consistent trader. Consistency and preparation are key to the success of any trading strategy.