An outside day is a well known price action pattern. It is one of the most widely used methods of trading in technical analysis. An outside day is defined by its open and close being outside of the previous day’s open and close. It is also characterized by a high and a low that both exceed the high and low of the previous price bar. An outside day usually signifies a change in trend and is often used by traders to take advantage of short-term price movements.

In most cases, it’s best to look for an outside day pattern on high volume days. This can indicate the potential for large moves, and increased trading opportunity. To identify an outside day pattern it is important to look for some kind of price break. This could be a break of a previous high, or the break of a previous low.

Once the pattern has been identified, traders should pay close attention to the volume, overall trend direction, and the direction of the price bars within the pattern. It is also important to pay attention to the direction of the price bar following the pattern. This is often a key indicator of the success or failure of the trade.

Outside days often signal a reversal of trend, as they suggest that a previous trend is becoming over extended. This makes them ideal to look for near market tops or bottoms. For example, if the market is in an uptrend and an outside day appears with a lower close, it may indicate the trend is in danger of reversing. Alternatively, if the market is in a downtrend and an outside day appears with a higher close, it may signal that a reversal is imminent.

Whether trading outside days is a viable strategy will come down to a trader’s own preferences and skills. Many traders will incorporate outside day patterns in their trading strategy, but as always, it’s important to practice proper risk management and not take any unnecessary risks.