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Inside and outside bars are quite popular among price action traders – for good reasons. Although trading single candlestick patterns is usually not a robust trading approach, if such candlestick patterns are traded within the right chart context, it is possible to create more robust signals.
An outside bar pattern consists of two candlesticks. The first one is typically much smaller and the second completely engulfs the first candlestick; hence the name outside bar. The outside bar can have various meanings, depending on the chart context. In the following article, we are going to discover three different trading strategies and how the outside bar can act as an important trigger for each one.
Strategy 1: Reversal
At the end of an established trend, one can often recognize the same pattern:
After a long momentum candlestick, the momentum suddenly drops off and signals a lack of trend support. In the screenshot below, the downtrend came to an abrupt end wh...
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