The candles of the pattern are ringed. An invented chart, drawn to show the shape. Not market data.
Also searched asoutside candle · outside day · outside reversal · engulfing range
How to recognise an outside bar
- High above the previous high.
- Low below the previous low.
- Where it closes within its own range: near the top, near the bottom or in the middle.
What it is taken to mean
It is read as a period in which the price was pushed beyond both edges of the one before, so both sides were tested. Traders give most weight to where it closed: near one end is taken as that side having won the period, in the middle as nobody having won.
What traders check next
- The close, before anything else. An outside bar that closes mid-range says only that the period was volatile.
- What came before: after a run, a close against the run is read as a warning; inside a range it is noise.
- Its size. A very wide bar puts a sensible stop a long way off.
Where people go wrong
- Calling it an engulfing pattern. Engulfing compares bodies; an outside bar compares the whole range, and its body may be small.
- Acting during the bar. It is an outside bar only once it has closed, and it broke one edge before it broke the other.
- Forgetting what makes them common: wide bars around news releases are often outside bars and say more about the release than about direction.
Questions people ask
- Outside bar or engulfing candle?
- They overlap. An engulfing pattern asks that the second body cover the first body. An outside bar asks that the second range, wicks included, cover the first range.
- Which way does the price go after an outside bar?
- It does not say. It records a wide period that reached beyond both edges of the last one. What follows is not known in advance.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast, and a pattern or a situation described here says nothing certain about what a price will do next.
