The Ins and Outs of Inside and Outside Signals

A long-term perspective is a must for investors while a mid-term view is sufficient for swing traders. Day traders must be agile and willing to reverse positions quickly, especially during volatile times, such as this entire year. Trend traders have had a rough time and it has not been easy on swing traders either. Trends of more than five consecutive days have been rare since the onset of the pandemic. 

The strongest trends tend to begin after consolidation or balance phases. But since volatility has been so high in 2020, many markets have not settled down enough to establish balance. So, when the rare opportunity is presented to engage in a potential trend trade we must react quickly.

With volatility at such lofty levels, very short-term patterns are often the only reliable signals we get. They require a two-day view and are easy to identify. The first is known as an inside day. If the high and low are within the previous day’s high and low, it is deemed an inside day. After an inside day, an above average vertical move frequently occurs within 24 to 48 hours. They are common just before breakouts or the onset of a trend.

The other easily recognized pattern is called an outside day. This setup occurs when both the high and low of the previous candle are violated. When this happens a move in the direction of the close often follows. Thus, a green outside candle will likely lead to higher prices and a red outside candle typically leads to lower prices going forward.

John Seguin, Market Taker Mentoring

Trader Education