What is an Outside Bar?

An Outside Bar (also called engulfing candle) is a candle with a higher high and a lower low compared to the previous candle. In other words, the current candle's entire range completely engulfs the previous candle. This shows strong momentum and can signal a reversal, especially after a clear trend.

How to identify

Find a prior candle with a narrow range.

The next candle must have a high higher than the previous high and a low lower than the previous low.

The body is usually large, showing strong pressure from one side.

When the outside bar has a bullish body, it is a bullish signal:

When the outside bar has a bearish body, it is a bearish signal:

How to trade

Confirmation: For a bullish outside bar, wait for price to close above its high. For a bearish outside bar, wait for price to close below its low.

Entry: Buy or sell in the direction of the confirmation. Avoid entering while the bar is still forming.

Stop loss: For a buy, place your stop below the outside bar's low. For a sell, place your stop above the outside bar's high.

Take profit: Target nearby support/resistance levels or use a 1:2 risk-reward ratio.

Real example

Imagine a downtrend that reaches a support area. A bullish outside bar forms with a long body closing near its high. You wait for the price to break above that high, then enter a buy. You place your stop below the outside bar's low. Price rallies toward the next resistance, giving a solid profit.

Common mistakes

Trading before the outside bar closes, which leads to false signals.

Ignoring the larger trend or key price levels.

Setting stop loss too tight, because the outside bar range is often wide.

Content is for reference only, not investment advice. Forex trading carries high risk.

Outside Bar Pattern – Trading the Full Range Reversal

What is an Outside Bar?

How to identify

How to trade

Real example

Common mistakes

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