What an outside bar is
An outside bar is a candle whose full range, from high to low including the wicks (the thin lines above and below the body), covers the whole range of the previous candle. It trades above the previous high and below the previous low within the same period.
The pattern appears on any market and timeframe. Traders discuss the outside bar in forex, metals and indices because it is easy to spot on a chart. Spotting it is simple. Reading it correctly is the hard part.
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Formation rules
| Rule | Strict version | Loose version |
|---|---|---|
| High | Above the previous bar's high | Equal to or above |
| Low | Below the previous bar's low | Equal to or below |
| Close | Near the high (bullish) or near the low (bearish) | Any close |
| Body size | Large compared with the wicks | Not checked |
Most traders treat an outside bar with a close in the middle of its range as indecision, not direction.
Outside bar versus engulfing
An engulfing pattern compares bodies, from open to close. An outside bar compares full ranges, wicks included. A candle can be an outside bar without being engulfing, and the reverse. The bearish engulfing and Three Outside Up/Down pages cover the body-based versions.
Drawn example
The chart below is a sketch with no real prices.
Price first moves below the previous low and runs stops (pending exit orders) resting there. Buyers then push it through the previous high, and the candle closes near its top. The low sits on a support level drawn from earlier price action.
What it says about buyers and sellers
During an outside bar, both sides took control for part of the period. The close shows who held control at the end:
- Close near the high: sellers pushed below the previous low but could not hold that move. Buyers finished stronger.
- Close near the low: the mirror picture. Buyers failed above the previous high.
- Close in the middle: the move widened the range but settled nothing.
This describes one period only. It does not predict the next move.
Where context matters
- Trend: an outside bar that closes in the direction of the existing trend is read differently from one that closes against it. Against a strong trend, it is often just a pause.
- Level: a bar that sweeps a clear support or resistance level and closes back inside gets more attention than one in the middle of nowhere.
- Timeframe: on very short charts, outside bars form constantly and carry little weight. Higher timeframes produce fewer bars with more trading behind each one.
See technical analysis for how levels and trends are drawn.
Why it fails in isolation
- Choppy ranges: when price moves sideways, outside bars appear often and lead nowhere.
- News spikes: a data release can swing price both ways in minutes. The resulting bar reflects the event more than any shift between buyers and sellers.
- Thin sessions: low liquidity exaggerates wicks.
- Large range: a big bar means a distant stop if you place it beyond the bar's extreme. That makes the position size harder to control.
- Gaps: on indices, a gap at the open can create an outside bar that shows little about intraday trading.
How traders look for confirmation
- A later candle closing beyond the outside bar's high or low, not just touching it.
- Agreement with the trend on a higher timeframe.
- Location at a level already tested on the chart.
- Tick volume (the number of price changes in the period) noticeably above the recent average. In forex this is an imperfect measure.
Confirmation reduces false readings but does not remove them. Leveraged forex and CFD trading can lose money fast. Planning the stop and position size before entering matters more than the pattern; see risk management.
Frequent questions
Is an outside bar a reversal pattern?
Not by itself. It can mark a reversal at a level, but it also appears as continuation or as noise.
What is the difference between an inside bar and an outside bar?
An inside bar has a range contained within the previous bar. An outside bar's range contains the previous bar.
Does an outside bar strategy work on every timeframe?
The pattern forms on every timeframe. On short charts it appears far more often and is more easily caused by random moves.
Do the colours of the candles matter?
The close matters more than the colour. A close near the bar's extreme carries more information than whether the body is green or red.