bullish & bearish outside days: here's everything you need to know
what are bullish and bearish outside days?
an outside day occurs when the market opens outside of the previous day's range. here are two visuals:
bullish outside days occur when price opens above yesterday's high.
they can either come down to fill the gap and tag yesterday's high, or they can continue higher.
a bearish outside day happens when price opens below yesterday's low:
why outside days matter
when the market gaps above or below the previous day's range, it's a sign that something significant has changed overnight.
this could be due to major news events, economic reports, or shifts in market sentiment. regardless of the cause, outside days often set the tone for the rest of the trading session.
by identifying these patterns early, you can position yourself to profit from the potential moves that follow.
what to look for when an outside day happens
no matter your style as a trader, being able to spot outside days is a useful skill due to the momentum they can create going forwards. when you spot this chart pattern, you should immediately be looking for:
- price in relation to the high (if a gap up occurs)
- price in relation to the low (if a gap down occurs)
these two areas often act as support (the high on a gap up) or resistance (the low on a gap down). we’ll cover more examples in a little, but these two areas act as key levels to either set profit targets on or start trades from.
how you can start trading outside days
let’s start building your trading plan using our outside day report on edgeful. this report gives you the stats behind what happens when an outside day occurs — does price fill the gap at yesterday's high/low, or does it continue higher?
here's what the stats say on NQ over the past year:
here are the key data points for the NQ over the last 12-months:
on bullish outside days (price opens above yesterday's high):
- 65% of the time, price retraces to touch the prior day's high
- Only 35% of the time does price continue higher without testing the prior high
on bearish outside days (price opens below yesterday's low):
- 58% of the time, price reverses back up to touch the prior day's low
- 42% of the time, price continues lower without testing the prior low
we can take these stats a step further by then using one of edgeful's outside days subreports — which is the "by close" subreport.
this report analyzes which direction price closes — either green or red — after an outside day occurs. here's what the stats say on NQ:
- 72% of the time over the past year, a bullish outside day open results in a close above the prior day’s high
- 64% of the time over the past year, a bearish outside day open results in a close below the prior day‘s low
we’re going to take this data two steps further (to give you even more edge):
the outside days by weekday subreport
first, let’s look at the outside day data when sorting by day of the week. we are using our "by weekday" subreport of the outside day report here.
Tuesday's data:
- over the past year on NQ, if price opens above the prior day’s high, it reverses back down and tests the prior high 88%! of the time.
- over the past year on NQ, if price opens below the prior day’s low, it CONTINUES DOWN and does not test the prior day’s low 75% of the time.
here’s Thursday's data:
- a bullish outside day over the past year, the NQ tests the prior day’s high 71% of the time.
- on bearish outside days over the past year, the NQ reverses back up to the previous day’s low 67% of the time.
for our final report, let’s check the outside days ‘by size’ variant.
here we’re going to be looking at if the magnitude of the gap above/below the prior days high/low has any impact on the likelihood price retests that prior high/low. we're basically checking if there's a big gap above yesterday's high, how likely is it price touches the previous high vs. how likely it would touch yesterday's high if there was a small gap.
here’s the data on NQ:
- a gap between 0.1-0.19% results in a reversal back down/up 93% and 83% of the time
here are the stats now for a gap size between 0.6-0.99%:
- a gap between 0.6-0.99% results in a reversal back down/up 25% and 0% of the time, respectively
the main takeaway from this report is your trading can bend with the market’s action — you don’t want to be shooting for a reversal back to the prior day’s lows on a bearish outside day that gaps down between 0.6-0.99% because the likelihood of them filling is extremely low.
based on the stats, you should be looking to trade an outside day gap fill setup if the gap is less than 0.2%.
building an outside day trading plan using the data we've already covered
with all of the above in mind, we can start to build our trading plan (using the outside day as our initial trigger).
- over half of the time on NQ, price will retrace to the prior high/low when a bullish/bearish outside day occurs
- over half the time on NQ, price will then close in the direction of the bullish/bearish outside day
- the day of the week has a material impact on what price will do (by weekday variant)
- the gap size has a material impact on what price will do (by size variant)
let’s now check out some real-world examples.
2 actionable examples to get your brain working
let's take a look at some past outside day setups to see these concepts in action.
here’s a bearish outside day setup from Wednesday May 8, 2024:
- price gaps below the prior day’s low (bearish outside day). overall, these reverse upwards and tag the prior day’s low 58% of the time over the past year on NQ.
- since this is a Wednesday, edgeful stats say bearish outside days reverse back up 70% of the time
- you could be trading the 5min ORB setup, with TP at the prior day’s low and your stop loss below the 5min ORB low
a simple trade that nets you 2R.
here’s a bullish outside day setup from Thursday October 17th, 2024:
- price gaps above the prior day’s high (bullish outside). 68% of these have reversed back down to tag the prior day’s high over the past year on NQ.
- since this is a Thursday, edgeful stats say bullish outside days reverse back down 73% of the time
- you could trade this in two ways… the first being a short of the ORB with targets being the prior day’s high, or you could be playing the bounce on either attempt. both are profitable and allow you to choose the side that fits your personality the best.
and, by the way, you can get a list of all the instances of bearish/bullish outside days + the chart of that day by scrolling to the bottom of the report section. studying past setups has never been easier.
wrapping up today's lesson
now that you understand the power of outside days, let's build a trading plan to help you profit from these setups.
- step 1: identify an outside day setup at the market open. is it a bullish or bearish outside day?
- step 2: check edgeful's outside day report to see the probabilities of continuation vs. reversal.
- step 3: set your profit targets and stop losses based on the type of outside day and the data from our report.
- step 4: enter the trade in the direction of your bias (long for bullish reversals, short for bearish continuations).
- step 5: manage your position. if price reaches your target, consider taking profits. if it hits your stop loss, exit the trade and reassess.
if you want to take your trading to the next level, you need to master outside days. and the first step is getting access to the data that can give you an edge.
so, there's no better time than now to start trading with edgeful.
