The Outside Bar Forex Swing Trading Strategy
The Outside bar is a candlestick that has its high and low overshadows or engulfs the candlestick before it. It can be bullish or bearish.
Bullish Engulfing pattern or Bearish Engulfing pattern are the other terms for outside bar.
Trading Rules:
Bullish and bearish Engulfing Pattern:
- Place a buy stop order 2-5 pips above the high when the there is a bullish outside bar formation. If bearish outside bar appears, place sell stop order 2-5 pips below the low.
- Place stop loss 2-5 pips below the low of the candlestick if you are in a buy position and 2-5 pips above the high of the candlestick if you are in a sell position.
- You can take profit at the previous swing high or low or 1:3 risk and reward ratio.
- You can also trail the stop behind the low if it’s a buy order and above the high if it’s a sell order.
DISADVANTAGES:
- Stop loss distances are huge which means you need to calculate lot sizes based on the risk you are willing to take.
- It may take a while to see some profits 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 trading using outside bar on areas that are not significant.
ADVANTAGES:
- Easy to identify, easy to understand and easy to implement.
- It can give you big gains if you ride out the swing or trade in the direction of the trend.
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