One of the Best Price Action Pattern
Outside Bar is one of the most effective price action patterns. This formation is very easy to notice at the chart and that’s why it is so popular. Together, Outside Bar or Pin Bar patterns with SR zones (supports or resistances zones) are useful in trading without any additional confirmation. Especially for a short-term trading.
Pattern construction is very simple: after one candle (bullish or bearish one) appears another one, which is pointing in the opposite direction and its body, covers body of the previous candle. Reliability of the pattern is higher when reversal candle is clearly bigger (e.g. two times bigger) and shadows are also covered by last candle.
This pattern is most effective when two conditions are meet:
- Reversal candle is preceded by at least 3 candles directed in the opposite direction to reversal candle.
- Formation appear at SR zones which additionally reinforce its strength. This condition requires some experience in determining support and resistance zones.
Examples of Outside Bar on charts
This pattern is very common, what you can see on the chart below. However when it shows in the middle of the trend it doesn’t guarantee success. On the GBPAUD chart below 1 out of 5 patterns was a total failure.
Better idea was to follow Outside Bar in support or resistance area. On the AUDCAD chart below you can notice that after 3 little bearish candles there was a pattern after which dynamic gains started.
On another chart Outside Bar showed up directly on the support. The candle was really big and there was no doubt that the bulls are strong.