The outside bar forex trading system is a development of the Japanese candlestick.
If you do not understand the Japanese candlestick, it is better for you to read again How to trade with an outside bar is basically as simple as trading with a pin bar.before moving on to this strategy.
In summary, the outside bar is a candle pattern in which it appears and seems engulf the previous candle, yes right, this is engulfing pattern.
Candle pattern outside the bar there is two groups.
Namely the Bullish Outside bar and the Bearish Outside bar.
Both of which have a similar pattern but differ in color of the candle
Outside bar forex strategy is a simple way of trading, this is part of price action trading.
Even without using indicators, the signal from the outer bar pattern is a reference in determining the entry point.
Then what is the definition of the outside bar, how to trade outside the bar? From several sources, we will review the outside bar forex strategy, enjoy your time.
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Outside bar pattern explained
When you have seen a chart on the trading platform that you are using, whether it is a MetaTrader or a web trader.
You will certainly encounter many kinds of patterns that are formed due to price behavior that reflects the actions of buyers and sellers.
One such pattern is an outside bar, why is this called outside a bar?
No other is that the candle or the outer bar appears to engulf the previous candle or bar.
Depending on the type of chart you are using, whether it is a candlestick chart or a bar chart, the pattern remains the same.
So it can be said that the outer candle has more length than the previous candle if calculated from the highest price with the lowest it resulted in the value of a wider pip compared to the previous candle.
The picture above is a bearish outside bar pattern, where the outer candle forms a bearish candle.
Whereas if the bullish outside bar is just a different color in the formed candle.
Psychologically the outside bar pattern shows the market conditions that were previously still in the indecision market.
And are waiting for the trading volume to increase.
And with the appearance of the candle engulf the previous candle shows that there was a big change in trading volume so that it gave a pretty good trading signal.
Bullish outside bar
The bullish outside bar is one by the two types of outside bar candle patterns.
The appearance of this pattern gives an indication that buyers have begun to come and giving pressure to the market and may dominate causing prices to move up.
A bullish outside bar pattern is a pattern where the open price is lower than the previous period’s close price and the high price is higher than the previous period’s high.
If you look at the candle engulf the previous candle, so the outside bar candle pattern is also said to be the engulfing pattern.
The appearance of a bullish outside bar gives an indication that the uptrend is pressing the market.
And this is a long or buys signal. To place a stop loss you can choose a few pips below the lowest price of the outside bar candle.
In determining the buy position there are also several ways for each trader.
Another way is to place a buy stop above the high outside bar with the stop loss at the lowest outside bar.
Bearish outside bar
Bearish outside bars are just the reverse of bullish outside bars.
The only difference is the color of the candle, depending on the color of the candlestick on your trading platform.
A bearish outside bar pattern indicates that after a period of several candle markets in a weak condition.
While price changes give indecision of market trends.
Then suddenly the appearance of a bearish candle where the open price is higher than the previous close candle.
And the close price is lower than the lowest price of the previous candle.
This is an indication that the seller’s volume has begun to dominate the market in increasing volume.
As a result, the bearish candle engulf candle before, and this is a sell signal or short position, and you can place a stop loss a few pips above the high outside the candle bar.
Bearish outside the bar shows that the recent trend is in a low range, and after the appearance of a bearish candle, the engulf previous candle indicates that the seller has started to enter and causes the volume to increase.
As a result, the bearish candle is longer than the previous candle, this is a strong sell signal on the price action strategy.
How to trade outside bar
How to trade with an outside bar is basically as simple as trading with a pin bar.
The main thing is you can recognize the characteristics of candle outside bars.
On a bullish outside bar, if there is a tail below the second candlestick it is a strong uptrend signal
On a bearish outside bar, if there is a tail above the second candlestick it is a strong downtrend signal.
Place a stop loss on the first close candlestick, to take profit you can adjust it to market conditions.
Look whether the Outside bar is a reversal signal or just a correction movement.
You can close the position at the next candlestick.
Entry and exit rules
Establishing a trading system would be better by making trading rules.
About how to determine entry and exit and also the trading strategies that are applied.
Although you can enter with the appearance of the outside bar candle, it is still possible that the price will reverse.
Here is the following entry and exit trading rules with the outside bar candlestick pattern
- Take the risk of no more than 1% of your total capital, this is a low-risk trading method recommended by professional traders.
- Specify entries only in the support and resistance areas, to minimize risk.
- Buy one or two pips above the high candle if it is a bullish outside bar, or you can place a buy stop in this case.
- Sell one or two pips below the low candle if it is a bearish outside bar pattern, you can place a sell stop in this case.
- To place a stop loss you can use the ATR indicator to measure moving averages, stop loss 2 x the ATR value of an open position.
- For the target profit, you can use a 1: 1 ratio, in this case, calculating 2 x the ATR value from the entry point.
- When you have reached floating profit, modify the stop loss at the break-even point, if you open two positions you can close half the position and let the other float until reach target profit.
However, you can make trading rules outside the bar with your own version.
This will certainly make you more confident and comfortable in implementing this simple price action strategy.
You can also take advantage of Forex pair performance from Finviz, this at least provides information on the performance of a currency pair.
Japanese candlestick charts are very powerful because they provide information on ongoing market sentiment.
Although possible outside bar candle patterns appear at low timeframes, for better choose daily timeframes or H4, but this also depends on your style, whether you like scalping trading or swing trading.
Outside bar forex pros and cons
- + Outside bar forex strategy is part of an easy-to-understand price action trading system.
- + If this pattern appears allows strong price movements so that it will provide a large maximum profit.
- + Easy trading rules that allow you to be more disciplined in trading.
- + This strategy can be applied to all platform financial markets, stock, forex, crypto or CFD market platforms.
- – The stop loss on the outside bar forex strategy is considered to be too wide apart, making it possible to get a high risk.
- – Maybe you still need to wait for a longer time to see the floating profit, because after the outside bar candle the movement sometimes becomes weak and takes longer to continue the trend.
- – Not all areas of the appearance of outside bar patterns will indicate a strong trend reversal, look for low-risk entry points in the support and resistance zones.
Although trading price action seems very simple, there are actually many trading strategies in this category.
Outside bar forex strategy is just one of many ways to trade based on price action.
If you combine all these strategies would certainly be less effective, why? because you will have more difficulty evaluating trades.
The thing to remember in trading is not how much you open a position to get the maximum profit.
But how effective your trade is.
Open many positions but most are just lost, it will only waste your money.
So it is advisable to be loyal to a trading strategy and to do so with discipline.
And this is the most difficult part for most traders, especially beginners who still just want to try.
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