Even for stock traders who don’t fancy Japanese candlesticks, the price bar contains valuable information, and there are some special price bar configurations that can be particularly useful for timing market entries.

An inside day price bar has a short trading range which fits inside that of the previous day:
•    The inside day’s high is lower than the high of the preceding day, and
•    Its low is higher than the preceding day’s low.

Japanese candlestick traders may recognise the inside day configuration as being the Western equivalent of the harami. This commonality of recognition for the inside day attests to its usefulness for traders, in any language.

The inside day signifies market indecision. Traders are uncertain if the stock’s current price level is appropriate, or if perhaps trouble is brewing and it’s time to exit the trend, no matter its direction. Volume tends to be low on inside days, as everyone sits back to see what everyone else does, unwilling to take a chance on the stock until someone else first makes a move.

An outside day price bar has a long trading range that envelopes that of the previous day:
•    The outside day’s high is higher than that of the preceding day, and
•    Its low is lower.

The equivalent in candlestick trading is the engulfing pattern, bullish or bearish. Again, the fact that both hemispheres recognise the outside day as a trading signal attests to its usefulness.

On its own, the outside day serves as a market warning. Its actual meaning depends upon the relative positions of the opening and closing prices:
•    If the open is at or near the low and the close is at or near the high, then the outside day is a bullish signal, similar to a bullish engulfing pattern.
•    If the open is at or near the high and the close is at or near the low, then the outside day is bearish, like a bearish engulfing pattern.

These bullish or bearish signals should be analysed within the context of the stock chart, as they may indicate:
•    A new trend, if none is currently in place;
•    A trend continuation; or
•    A trend reversal.

Note the example of the inside day (1) and outside day (2) on the partial chart, below:

This stock was in a steady uptrend when it ran into a strong resistance level at the red horizontal line, which remained unbroken after being tested several times. At this point an inside day formed, with the bulls no longer quite so keen and the bears waiting to see what would happen.

Next day the bears attempt to initiate a downtrend, but it requires several days of back and forth, indecisive trading, and the formation of an outside day that barely succeeds in spiking through the resistance level, before they’re successful. Note that the day after the bearish outside day opens at the high, confirming the change in trend.

Popularity: 10% [?]