EURUSD Outside bar price action trading strategy trade signal analysis

Outside Bar’s both high and low prices exceed the range of previous candle. In the chart below you can see a very nice bearish Outside Bar. As you can see, this Outside Bar is even exceeding the high as well as low prices of several previous candles. This is my preferred approach as you’ll enter the trade as the price moves in your favour — but there’s a possibility of a false breakout.

The bears want a 2nd sideways to down leg from a micro wedge bear flag over the past 3 weeks. Not shown in this graphic are the upper and lower shadows however as long as the outside bar completely covers the bar beside it in any form, it will no doubt trade the same. The middle line is an exponential moving average, while the price channels are the standard deviation of the asset being considered. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products.

If the price breaks a crucial support during our long trade, this can be a clear sign that we should close the trade. Also, if you spot another reversal candle pattern when the price is trending in your favor, you might want to close your trade at that time. The are many options available for the astute price action trader to manage their pin bar trade. In the EURUSD daily chart above, notice how the price was previously in a downtrend until the bullish outside bar candlestick pattern showed up.

Exhaustion Bar

The stop loss in this case should be placed on the opposite level of the inside range. When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. If you are a fan of pure price action Forex trading using candlestick patterns, then this lesson will be of particular interest to you. Today we will discuss a powerful candlestick formation which can often precede a sharp price move. At the end of the second bearish impulse, the price action enters into a consolidation phase.

Or, you can wait for the candle to close — but you risk missing a big move. Previously, you’ve learned how Inside Bar allows you to catch reversals in the market. Instead, for my Inside Bar strategy, I prefer for the price to make the reversal move first and then form an Inside Bar. So, when you see multiple Inside Bars together, it’s a strong sign the market is about to make a big move soon. And volatility in the markets are always changing, it moves from a period of low volatility to high volatility .

Take Profit on Inside Bar Setup

If you trend trade, you will probably only trade the outside bar pattern that conforms to your directional bias in the market. Longer tails on a pin bar indicate a more significant reversal and rejection of price. Thus, long-tailed pin bars tend to be a little higher-probability than their shorter-tailed counter-parts. An outside bar trading strategy is based on the formation of a single candlestick pattern, known as an outside bar.

For instance, a stock may make a small move lower on the first day, then open even lower than the prior day, but rally sharply higher by the end of the second day. The indication is that bears had control over the market, but then bulls took over and overwhelmed them, signifying a change in the prevailing trend. Bullish Outside Bar candlestick is created within a down swing move, and bearish Outside Bar can be found within an up swing move. If you will trade the Outside Bars in the direction of a long-term trend, you will have a better scope for success. In the screenshot below, the market was in a downtrend as indicated by the orange long-term moving average. Consolidations are normal events during trending phases when the market moves sideways temporarily.

Now, don’t worry about how to https://forexhero.info/ your stop loss or trade management because we’ll cover that later. Now, you’ll learn how to use the Inside Bar strategy to catch the trend. This is still an Inside Bar as the range of the candles is “covered” by the prior candle. This tells you there are indecision and low volatility in the markets. At resistance we expect the price to reverse or supply to exceed demand confirming the supply.

Bonus: Inside Bar price action analysis

Hence, after a pullback of three bars, the trend is ready to resume. After the bulls are exhausted, the bears will take the market down. After the bears are exhausted, the bulls will take over, and the market will rise. Trends that have been going on for long are more likely to have a reversal than new trends.

When that happens, it makes sense to enter as soon as the bar takes out the extreme of the prior … The buildup tells us that the price stuck to the level and the market participants that previously caused the price to move away from the level are not as strong anymore. In the context of the scenario below, the sellers were not able to defend the resistance level anymore and the buying power held the price up. The buildup candlesticks often have the dimensions of inside bars. The following breakout often happens with a strong momentum candlestick.

It indicates that buyers have resumed control of the short term trend. Bullish reversal bars can be combined with hammers and shooting stars, narrow range bars and other technical candlestick formations. For instance, you can have a green bullish reversal hammer in the context of a buy setup. Notice that at the end of the triangle formation, the price action creates a bullish pin bar pattern.

Reversal Patterns and Breakouts

Before the price action closes a pin bar, the candlewick has initially been part of the candle’s body. Engulfing bar patterns with support and resistance levels help confirm those levels and provide entries. The outside bar can be either bullish or bearish and how you trade them will depend on your trading strategy.

The first one is typically much smaller and the second completely engulfs the first candlestick; hence the name outside bar. The outside bar can have various meanings, depending on the chart context. In the following article, we are going to discover three different trading strategies and how the outside bar can act as an important trigger for each one. So as an informed price action trader, you should be looking for the break of the inside bar, which would provide a tradeable opportunity in the direction of the break.

Like always, ensure you map out a trading plan, risk protocols, and follow it on every single trade. We need stops and while they can be mental stops, you have to know where you will exit. A simple approach is either the low of the previous candle or at the midpoint of that candle. As the market alternates between range contraction and range expansion, the NR7 alerts us to standby for explosive moves. Its range must exceed that of the previous bar with a higher high and a lower low.

The longer outside bar trading goes below the general price action, which means that the pattern is significant. This candle could be used as an early exit from the short trade. Otherwise, the exit signal comes when the price action closes a candle above the symmetrical triangle on the chart. Use Price Action Rules – This approach involves applying simple support/resistance rules, in a combination with chart and candle patterns. Why exit a trade, where the price is still trending in our favor?

So, it can be a good idea to incorporate some oscillators like RSI or CCI at this point to know whether the trend should remain strong or not. When the bullish Outside Bar closes in top-quarter of its range, then it is likely to be stronger, and the same is seen when the bearish closes in the bottom of its price range. Then, during the trend, another bullish outside bar during the first pullback provided another potential trading opportunity. Sell the Forex pair when the price action breaks the lower level of the Inside Bar range.

In this case, we were trading an inside bar reversal signal from a key level of resistance. Its relative position can be at the top, the middle or the bottom of the prior bar. One way to confirm the trade entry points is to wait for the outside bar setup to close. This means waiting for the candlestick pattern to complete and for the current candle to close. If the current candlestick has closed outside of the previous candle’s range, this is a confirmation that the outside bar setup is valid. A bullish outside bar pattern forms when a little bearish candle precedes a large bullish one.

• Yes, most traders accept the definition of an outside bar to be the same as an engulfing bar.
• In this manner, the longer wick is sticking out above the price action.
• But we recommend doing so while using the Stop Loss Clusters indicator.
• They often form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move.
• The indication is that bears had control over the market, but then bulls took over and overwhelmed them, signifying a change in the prevailing trend.

In each case, it would signal that the consolidative range is ending in favor of a downward price movement. A trader could prepare to enter a short position, and put in a stop loss above the high point of the pattern as shown on the image. The chart starts off with a bullish price move, which ends with a bearish pin bar candle formation. The longer wick of the pattern goes above the general price action, which confirms the authenticity of the candle.

Emini Outside-Outside Pattern on Monthly Bar — Breakout Mode

Bearish Pin Bar – When you spot a valid bearish pin bar setup, you could sell the Forex pair at the first candlestick which closes below the small wick of the pin bar. They should be used only when market conditions are in alignment, not in isolation. For example, trade bullish Engulfing bar patterns in an uptrend or against a support level. You should take trades on outside bar when the chart pattern happens around support or resistance levels, Fibonacci levels, pivots etc. When trading pin bars, there are a few different entry options for traders.

This is our outside bar that took out the highs of the previous candle and reversed to take out the lows. Unlike the inside bar that is completely inside the previous bar, the outside bar candlestick takes out both the high and the low of the previous bar. However, while the inside bar shows no strength in either direction, the NR7 pattern might drift upwards or downwards. In such cases, the NR7 represents a price thrust with decreasing volatility. As the lower volatility comes within the context of seven bars, instead of a single bar like in the case of an inside bar, the NR7 pattern is a stronger sign of decreasing volatility. When the market is trending, it is hard to sustain a counter-trend pullback.

• Use a multiple of the size of the pin bar as a target, or apply simple price action rules in order to exit the trade.
• As you see in this example, the EUR/USD decreases afterwards making this Hikkake trade a profitable deal.
• But for now, I want to share with you a “special” Inside Bar so you can profit from trapped traders.
• Candlestick patterns are great tools to improve your forex trading experience.

A bullish key reversal bar opens below the low of the previous bar and closes above its high. A bullish reversal bar pattern goes below the low of the previous bar before closing higher. A kicker pattern is a two-bar candlestick pattern that predicts a change in direction of an asset’s price. A bearish engulfing pattern indicates lower prices to come and is composed of an up candle followed by an even larger down candle. The strong selling shows the momentum has shifted to the downside. A bullish outside reversal, also called a bullish engulfing, happens when the second candle is a move higher.

The above example fits definition 3 of a bearish Engulfing setup—both candles have relatively short wicks, especially the second candle, which shows a decisive bearish move. This bearish Engulfing pattern was the first sign that the previous uptrend was about to pause. I could either go short at the bearish Engulfing setup or exit my trade if I were long during the previous uptrend. When there is a breakout of high or low, you are triggered into the trade. As a beginner, keep your eyes peeled for daily chart time frame pin bars as well as 4 hour chart time frame pin bars, as they seem to be the most accurate and profitable. The best ones occur in strong trends after a retrace to support or resistance within the trend, or from a key chart level of support or resistance.

An outside reversal is a price pattern that indicates a potential change in trend on a price chart. The two-day pattern is observed when a security’s high and low prices for the day exceed the high and low of the previous day’s trading session. Outside reversal is also known as either a bullish engulfing or a bearish engulfing pattern when observed on candlestick charts. Inside and outside bars are quite popular among price action traders – for good reasons. Since the Inside candle on the chart is a sign of a consolidating market, we can draw a horizontal support and resistance level around this range in anticipation of a future breakout.

There is then another green up bar showing that buyers are still in control. Finally, the sellers come back in and close the next bar down, making the bearish reversal bar. We mark the inside candle’s high and low as in the previous two examples . A conservative trader would identify the ID NR4 breakout when the price action closes a candle below the bottom of the pattern. An aggressive trader would identify the ID NR4 breakout when the price reaches a few pips below the bottom of the pattern.

If you want to capture a swing, then you can exit your trades before opposing pressure steps in. But for now, I want to share with you a “special” Inside Bar so you can profit from trapped traders. You can use it to trade with the trend or, market reversals. Make sure you are not using the exact high/low of the wick when placing the stop loss order.