Swing Strategy Basic #11: Outside Bar Forex Trading Strategy

Hi Traders,

Today you will learn how to trade the Outside Bar Forex Trading Strategy.  The outside bar forex trading strategy is similar to the inside bar forex system.

The outside bar forex trading strategy can be used a swing trading strategy when taken around swing points on your forex price charts.

But first, you got to know what an Outside Bar Is.



WHAT IS AN OUTSIDE BAR?

Ok, the Outside bar (or you may call candlestick, whichever you prefer), is a candlestick that has its high and low overshadows or engulfs  the candlestick before it.

The outside bar is can be both bullish or bearish.

Some of you may know them as Bullish Engulfing pattern or Bearish Engulfing pattern. These are the same thing.  You choose what you prefer to call them.

Here’s what a Bullish Outside Bar (Bullish Engulfing Pattern)Looks Like:

Here’s what A Bearish Outside Bar(Bearish Engulfing Pattern) Looks Like:

So now that you know what a bullish and bearish outside bar looks like, let’s find out how you can trade these candlestick patterns.

HOW TO TRADE THE OUTSIDE BARS

Trading the outside bars is straight forward and here are the rules of the outside bar forex  trading system:

Step 1:

When an outside bar forms you 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).

Step 2:

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.

Step 3:

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).

Step 4:

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.

Note that the chart above is for a buy trade only. A sell trade setup would be the complete opposite of that. You just have to figure it out yourself…

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 has moved.
• avoid trying to trade outside bar trading setups on on areas on chart that really have no significance. What I mean is 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

• Easy to Spot and the trading rules are very easy to understand and implement.
• 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 swing or trend buy using trailing stops.

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Cheers!