Where an outside bar closes — above or below the close of the previous bar, or near the extreme of the outside bar — is sometimes used to interpret upcoming price action, but such signals are often contradictory, especially when considering different time frames (i.e., intraday bars vs. daily or weekly bars). Upon further inspection, however, outside bars may contain hints about whether a strong price move may follow through or reverse direction.

This study tracked daily bars and identified outside days with unusually high volatility in the S&P 500 tracking stock (SPY) over the past 13 years. These outside days were then separated into gains and losses to see whether bullish or bearish behavior led to reliable patterns in the following 10 days. Although these simple guidelines failed to pinpoint major market turning points, they preceded fairly strong short-term patterns.