This outside bar forex trading strategy is a simple trading strategy and its easy to spot the pattern setup and and also has simple trading rules which beginner forex traders can find easy to use.
Timeframes: 4hr and daily
Currency Pairs: Any
Forex Indicators: None
WHAT IS AN OUTSIDE BAR PATTERN?
In order for you to trade this forex strategy, you need to know what an outside bar pattern looks like. The outside bar is a two bar(or candlestick) pattern.
The outside bar (or candlestick) is a candlestick that has its shadows engulf the bar(candlestick) before it.
What this means is that the outside bar’s high and low overshadow or engulfs the bar before it. Now, the outside bar has other names too. It can be also called a bullish engulfing or bearish engulfing candlestick pattern.
Here’s what a Bullish Outside Bar Pattern Looks Like:
Here’s what a Bearish Outside Bar Pattern Looks Like:
OUTSIDE BAR FOREX TRADING STRATEGY RULES
Refer to the chart below on how to trade the outside bar forex trading strategy:
- Place a buy stop order if bullish outside bar and a sell stop order if bearish outside bar 2-5 pips above the high(if bullish outside bar) and 2-5 pips below the the low (if bearish outside bar).
- Then place stop loss in a similar manner on the other side, 2-5 pips away from the low if its a buy stop order and 2-5 pips above the high if its a sell stop order.
- Your take profit target, you have a few options: target previous swing high points (if its a buy order), or previous swing low points if its a sell order. Or 3 times your risk…say if you risk 50 pips initially, then you you should set your take profit target at a price level where once hit, will give you a 150 pips profit (3 times your risk).
- Trade Management: one of the best trade management technique is to use trail stop behind the low if its a buy order and above the high if its a sell order. You will get stopped out when a candlestick knocks out the low of the previous candlestick(for a buy order) or you will get stopped out when the high of the previous candlestick is intersected for a sell order. At least you would walk away with a profit that you’ve locked.
The chart above, show the trade setup for a buy order. For a sell setup, it will be the exact opposite.
DISADVANTAGES OF THE OUTSIDE BAR FOREX TRADING STRATEGY
- stop loss distances are huge (the larger the timeframes used, the larger the stop loss), which means you need to calculate lot sizes based on the risk you are willing to take.
- sometimes it may take a while before you can start to see some profits on your trades. This is because,the outside bar has moved a great deal already, and the next 2-3 candlesticks may not move much distance like what the outside bar did.
- avoid trying to trade outside bar trading setups on on areas on chart that really have no significance. What I mean is is that you should take trades on outside bar when the chart pattern happens around support or resistance levels, Fibonacci levels, pivots etc.
ADVANTAGES OF THE OUTSIDE BAR FOREX TRADING STRATEGY
- a simple forex price action trading system easy to understand and follow
- he outside bar is easy to spot if that’s your focus and the trading rules are very easy to understand and implement.
- you will notice that market has potential to move a very long way when these outside bars form and can bring you hundreds of pips if you ride out the trend and locking your profits by using trailing stops placed under swing high or lows as price moves in favour of your trade.
If you like this outside bar forex trading strategy, don’t forget to like, tweet or share by clicking the buttons below.