In last month’s issue, we looked at short-term performance following inside days across seven currency pairs ("Inside days in major currency pairs," Currency Trader, November 2008). Inside days have a lower high and a higher low than the preceding day and signal a volatility contraction. The study found, overall, inside days preceded slight gains within a week, slightly better than the seven pairs’ benchmarks, or typical random moves.

The analysis measured price action after all inside days, after up- and down-closing inside days, and after inside days that followed trend runs of consecutive higher highs and higher closes (and backto- back lower lows and lower closes). In almost all cases, inside days were followed by upward price moves over the next five days.