The outside bar pattern Strategy is a reversal pattern, depending on its formation and location. When utilized correctly, the outside bar pattern can lead to lucrative and highly successful trades. To qualify as a valid outside bar pattern, the candlestick must have both a higher high and a lower low compared to the preceding candlestick.
For a bearish outside bar, Outside Bar Pattern Trading Strategy it should typically form at a swing high, with the closing price situated in the bottom one-third of the candlestick.
Conversely, for a bullish outside bar, Pin Bar Pattern it should form at a swing low, with the closing price positioned higher and in the top one-third of the candlestick.
Identifying the Outside Bar Candlestick Pattern
As depicted in the example, a bearish outside bar should be sought after at swing highs.
Though the outside bar pattern is not as prevalent Outside Bar Pattern Trading Strategy as other candlestick patterns like the pin bar and inside bar, Refer to the example below, where the price exhibits a distinct higher high and lower low Candle Pattern Indicator than the preceding candlestick.
it is relatively straightforward to identify. An outside bar often presents itself as a substantial candlestick that conspicuously stands out. Keep in mind that the outside bar signals a reversal, making its location crucial.
Trading the Outside Bar Pattern
It’s remember that relying solely on the outside bar pattern is not ideal. To enhance the probability of success, traders should incorporate additional factors such as major support and resistance levels.
The confluence of these factors increases the reliability of the trade.
When considering entry into an outside bar pattern trade, several strategies come into play. In the provided example, Wyckoff Distribution the price ascends to a swing high, coinciding with a significant resistance level, before forming a high-quality outside bar.
Setting Stop Loss and Profit Target
Traders have the option of employing different strategies for stop loss placement, depending on their risk tolerance and desired risk-reward ratio. Two primary approaches are discussed below:
Traders can opt for a confirmation entry by waiting Master Pattern for the price to breach the high or low of the outside bar before entering the trade.
For instance, when considering a bearish outside bar, entry occurs once the price moves below the low of the outside bar.
A pending sell stop order can be used Trade Entry Tips When Using the Outside Bar Candlestick Pattern to automate this entry, eliminating the need to continuously monitor the price.
Where to Set Stop Loss and Profit Target
Stop loss placement can vary based on the trader’s aggressiveness and risk-reward preferences. Aggressive traders may place their stop loss just above the nearest resistance level for a bearish outside bar trade. This approach yields a tighter stop loss and greater Harmonic Chart profit potential but carries increased risk.
conservative traders may employ a standard stop loss method, where the stop loss is positioned above the high or below the low of the candlestick. For instance, when going long from a bullish outside bar, the stop loss can be placed below the low of the candlestick. This method offers a safer stop loss placement but often results in a wider stop loss level.