The Outside Key Reversal Bar is the top of the reversal bar food chain. The “outside” part of the definition means that the bar made both a higher high and a lower low than the previous bar. The Outside Key Reversal Bar is probably the easiest to recognize because it sticks out like the proverbial sore thumb on your trading chart.

Not every reversal bar will signal a change in trend, even this one, but when you see an Outside Key Reversal Bar on your trading chart your nostrils should flare and your eyes widen!

Reversal bars have a heirachy of significance. The most common type of reversal bar to occur in every time frame is the plain vanilla reversal bar, which we covered in an earlier post. A little higher on the food chain is the Key Reversal Bar. The fundamental concept is the same. Prices make a new swing high (or low) and then close beyond the range of the open and the prior day’s close.

Just from looking at the bars on the left side of the graphic you can tell what happened during this time frame. The market opened lower than yesterday’s close but buyers came into the market and took prices to a new swing high. We cannot tell from the bar but either buying dried up or sellers came into the market and overwhelmed the buyers. Price closed lower than the today’s open and yesterday’s close. We would look for a Bearish Reversal or change in trend on this bar.