The Outside Bar Pattern Forex Strategy is somewhat similar to the inside bar forex strategy, but this time the inside bar forms very first, then the outside bar forms later.
So What Is An Outside Bar Forex Pattern?
The outside bar is the bar (chart candlestick) whose high and low engulfs the previous candlestick’s high and low. This means that the previous candlestick lies within the shadow of this outside bar.
Here are examples of bullish and bearish outside bar patterns that look like.
This one is a simple textbook example of a bullish outside bar pattern:
- The first candlestick is bearish (red color) and is short compared to the second bullish candlestick, the outside bar.
Again, this one below is a textbook example of a bearish chart outside bar pattern.
So now that we know what an outside bar chart pattern looks like.
What Are The Best MT4 Timeframes To Trade The Outside Bar Forex Strategy?
4 hr and daily chart timeframes are recommended, but you can also use it on a 1 hr mt4 timeframe if you prefer to.
What Currency Pairs To Trade?
You can trade any mt4 currency pair.
Example of A Bullish Outside Bar Pattern Trading Setup
The chart below is the daily chart of USDCAD. Here are a few things to note:
- Price has been trending up and found support at around the 1.3262 level shown by the yellow color line.
- Price went up and then back down to test the chart support level, and then you can see the chart price action has formed a bullish outside bar chart pattern on the support level. This was a good buy-entry signal.
- After that, the market went up.
So the trading rules are straightforward:
- identify levels of chart support where a bullish outside bar chart pattern can form.
- Place your buy stop order 1-2 pips above the high of the outside chart pattern.
- Place your stop loss(SL) 5-10 pips below the low of the outside bar chart pattern.
- To take profit targets, aim from previous swing high points or peaks, or you can aim for a risk: reward (R: R) of 1:3
Example of A Bearish Outside Bar Pattern Trading Setup
Below is a daily chart of Forex EURGBP. Here are a few things to note:
- price has been going up for a while until it hit a chart “resistance zone,” as seen on the chart below.
- As you can see, the price formed a bearish outside bar chart pattern in the resistance zone.
- After that chart price continued to move down further.
What are the simple trading rules for a sell entry setup, then? Well, just the opposite of a buy entry setup:
- identify chart resistance levels on your charts where you can watch for the bearish outside bar chart pattern to form.
- Then place your sell stop order 1-2 pips below the low of the outside bar chart pattern.
- Place your stop loss(SL) 5-10 pips above the high of the outside bar chart pattern.
- identify previous chart swing lows and use those levels as your take profit target levels or use risk: reward(R: R) of 1:3
Advantages of the Outside Bar Pattern Forex Trading Strategy
- Outside bar chart patterns are strong reversal patterns when they form around significant support and resistance levels.
- Reasonable risk to reward ratio.
- An easy trading strategy to understand and implement.
Disadvantages of the Outside Bar Pattern Forex Trading Strategy
- We tend to see a lot more inside bar patterns than an outside bar chart pattern in forex on the mt4 daily chart which means that you may not see many outside bar chart patterns setups form if you only monitor a handful of mt4 currency pairs to trade.
- The stop loss(SL) distance can be huge if the outside bar itself is long; therefore, reduce your order size to manage or keep your risk to an acceptable level.