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A powerful two-candle pattern where the second bar completely engulfs the first — both high and low exceed the prior bar. Signals a dramatic shift in volatility and control.
The Outside Bar (also called Engulfing Bar) is a two-candle pattern where the second candle's range completely engulfs the first candle's range — both high and low exceed the prior bar. It signals a dramatic shift in volatility and control.
When appearing after a trend, it suggests strong reversal potential. The wider range signals increased participation and conviction, making it one of the most powerful two-candle patterns in classical technical analysis.
The outside bar represents a complete sentiment shift within a single period. The market first tests one direction (taking out the prior bar's extreme), then reverses with enough force to take out the opposite extreme and close strong.
This two-sided test followed by decisive resolution shows one side completely overwhelming the other. Think of it as the market saying 'we tried both directions, and here's the winner.'
The wider range compared to the prior candle signals increased participation. More traders are engaging, more volume is flowing, and the outcome carries more weight than a normal candle. When the market expands after compression, it's telling you something important.
Bullish: Buy above the high of a bullish outside bar that closes in the upper third after a downtrend.
Bearish: Sell below the low of a bearish outside bar that closes in the lower third after an uptrend.
Place stop beyond the opposite extreme of the outside bar. For bullish setups, stop below the outside bar's low. For bearish, stop above its high.
T1: Minimum 1:1 risk-reward. T2: Measured move of the outside bar's range projected from the breakout point. The bar's range often predicts the subsequent move's magnitude.
Minimum 1:1.5. The wide range can make stops larger, so ensure the measured move target justifies the risk.
Outside bars have wide ranges, meaning stops are further away. Ensure your position size accounts for this larger risk distance.
The Outside Bar is a versatile pattern that can signal reversals or continuations depending on context. Its power comes from the range expansion and decisive close, but proper market context is essential for reliable trading.
The best outside bars come after compression. An inside bar followed by an outside bar is one of the most powerful two-bar sequences in price action — the squeeze before the expansion.
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