What is an outside day in trading?
In one line: An outside day is a daily candle that trades above the previous day's high and below the previous day's low, covering the whole prior range.
What it looks like
It's the opposite of an Inside day. The new candle is bigger in both directions. It takes out yesterday's high and yesterday's low in one session.
Lots of ground covered. Both sides got tested.
A simple example
| Day | High | Low | Close |
|---|---|---|---|
| Monday | $41.20 | $39.80 | $40.10 |
| Tuesday | $41.70 | $39.30 | $41.55 |
Tuesday's high ($41.70) is above Monday's. Tuesday's low ($39.30) is below Monday's. So Tuesday is an outside day.
Now look at the close. Tuesday dipped under Monday's low, then finished near its own high, at $41.55. Sellers pushed first. Buyers won the day.
The close is the story
An outside day's shape says "big fight." Its close says who won.
- Closes near the high: buyers took over after the dip.
- Closes near the low: sellers took over after the pop.
- Closes in the middle: a wild day with no winner. Often just news and noise.
This fits our body-close habit. What price did at the close matters more than where it poked during the day.
Outside day vs engulfing candle
They're close, but not the same. An outside day compares the full range, wick to wick. An Engulfing candle compares only the bodies, open to close. A day can be one and not the other. Our engulfing pattern guide covers the body version.
A common mistake
Calling every outside day a Reversal. On news days, ranges blow out in both directions. An outside day in the middle of a range, closing in the middle, tells you the market was busy, not that it turned. Location and the bigger trend still come first.
Questions
Is an outside day a reversal signal?
It can be, when it forms at an old turning point and closes hard in the new direction. In the middle of a range, it's usually just a volatile day.
Can an outside day happen on other timeframes?
Yes. On intraday charts it's usually called an outside bar. Same idea: higher high and lower low than the bar before.
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