Outside Day
the mirror of the inside day — expansion exhausts, but direction stays hiddenAn outside day is one where the session’s high is above the prior day’s high AND the low is below the prior day’s low — the bar fully engulfs the previous bar’s range. It is the exact inverse of the inside day. Per Brooks, an outside bar is a two-sided fight where both buyers and sellers got activated; the range blows out, and most often it is a trading-range bar — a transition rather than a clean signal. This study asks the mirror-image questions of the Inside Day study: does the blown-out range mean-revert, and does the bar’s close location carry direction into the next session? Across 1,475 outside days on the same 15 liquid US large-caps and ETFs (Jan 2022 – May 2026), the answer rhymes with the inside-day result almost perfectly.
Next session’s range is smaller than the outside day’s range on nearly 3 in 4 outside days.
On any random day (non-outside), next day’s range is smaller than today’s about half the time.
0.77× range in the next session (0.94 ATR vs 1.22 ATR outside-day mean). The blow-out reverts.
The range cycle is symmetric
Read alongside the Inside Day study, the two results close a loop. Inside days compress and resolve into expansion (72.9% expand, +26.6 pp). Outside days expandand resolve into contraction (74.3% contract, +25.9 pp). Both effects are nearly the same size and both run against the same ~48% baseline. And in BOTH cases the magnitude is predictable while the direction is a coin flip — the inside day’s midpoint carry was 49.7%, the outside day’s close-location carry is 48.2%. The market mean-reverts its range; it keeps the direction coin hidden either way.
Outside-day vs. baseline contraction rate
50% reference = coin-flip. Difference = +25.9 pp (CI95 entirely above zero). 15 tickers · 2022–2026. n=5,000 bootstrap.
What IS predictable: the range reverts
An outside day reliably signals that the next session will have a SMALLER range than the outside day itself. The contraction rate is 74.3% across 1,475 events — all 15/15 tickers show contraction rates between 69% and 81%, with the weakest name (MSFT at 69.2%) still 19 pp above its own baseline. The mean next-day range is 0.77×the outside day’s range in ATR units (0.94 vs 1.22 ATR). The blow-out exhausts: expansion → contraction is structural, the inverse of the inside-day result.
What is NOT predictable: direction
Whether the outside bar closed near its high (a “bull” outside bar) or near its low (a “bear” outside bar) does NOT predict the next session’s close direction. Close-location carry rate: 48.2% (CI95 [45.3%, 51.0%] — straddles 50%, on 1,199 decisive bars). Statistically a coin flip — and if anything fractionally below 50%, hinting the strong close is more often a trap than a tell. Same lesson as the inside day: you know the range will shrink; you don’t know which way the next session breaks.
Per-ticker detail
Sorted by outside-day contraction rate. All 15 tickers contract between 69–81%. The close-location carry column shows noise throughout — no ticker achieves a CI-clear directional edge.
| Ticker | N outside | Contract % | Baseline | Edge | Dir carry |
|---|---|---|---|---|---|
| AMZN | 86 | 81.4% | 47.1% | +34.3 pp | 46.3% |
| QQQ | 107 | 81.3% | 46.9% | +34.4 pp | 47.3% |
| AVGO | 93 | 78.5% | 48.2% | +30.3 pp | 51.4% |
| IWM | 112 | 76.8% | 48.5% | +28.3 pp | 50.5% |
| XLK | 100 | 75.0% | 49.2% | +25.8 pp | 47.7% |
| XLF | 107 | 74.8% | 48.0% | +26.8 pp | 41.5% |
| NVDA | 108 | 74.1% | 47.9% | +26.2 pp | 47.3% |
| AAPL | 91 | 73.6% | 47.8% | +25.8 pp | 50.0% |
| JPM | 106 | 72.6% | 48.1% | +24.5 pp | 48.3% |
| SPY | 113 | 72.6% | 49.4% | +23.2 pp | 48.9% |
| AMD | 100 | 72.0% | 47.9% | +24.1 pp | 50.7% |
| GOOG | 94 | 71.3% | 48.5% | +22.8 pp | 51.3% |
| TSLA | 75 | 70.7% | 50.1% | +20.6 pp | 47.0% |
| META | 92 | 69.6% | 49.2% | +20.4 pp | 56.5% |
| MSFT | 91 | 69.2% | 49.7% | +19.5 pp | 39.5% |
What this means for trading
- Outside days are range-contraction setups. After an outside day, the next session very likely offers a smaller range than the outside day itself (74.3%, mean 0.77×). Expected-move and options pricing that extrapolate the blown-out range forward will tend to overshoot — the day after an outside bar is, on average, calmer.
- Do NOT trade direction off the close location.The 48.2% close-location carry means a strong close near the high or low of an outside bar is coin-flip information at best. On an outside day, do not pre-position the next-day trade based on where the bar closed. Wait for the next session’s own break.
- Outside bars confirm Brooks’ “trading-range bar” framing.The contraction-with-no-direction signature is exactly what you’d expect from a two-sided fight that traps both sides. The outside bar resolves the volatility, not the trend — it is a balance event, not a breakout.
- It is the inside day in reverse. Use the two together: an inside day flags a likely range EXPANSION tomorrow; an outside day flags a likely range CONTRACTION. Neither tells you the direction. Sizing and volatility expectations key off which one just printed.
How this fits the other studies
- Inside Day: The direct mirror. Inside days compress and expand (72.9%); outside days expand and contract (74.3%). Same baseline (~48%), same edge size (~26 pp), same coin-flip direction. Together they describe a daily range that mean-reverts around its own recent volatility — wide days beget narrow ones and vice versa — while keeping direction independent of the compression/expansion signal.
- Gap Fill Rate: Both studies point to mean reversion at the daily scale. Small ATR-normalized gaps fill 75% of the time; outside-day ranges revert downward 74% of the time. Volatility — whether a gap or a blown-out range — tends to be given back rather than extended.
- Day Types: An outside day is frequently the bar that ENDS a directional run and ushers in a trading range — the opposite role from the inside day, which often precedes a trend day. The Day Types classifier should see range/reversal sessions cluster after outside bars and trend sessions cluster after inside bars.
Pre-registered verdicts
As with H13(c), the failure is the useful part: it rules out the “strong close = follow through” intuition and confirms the Brooks framing of the outside bar as a two-sided, non-directional event. Compression and expansion both resolve their MAGNITUDE predictably and leave DIRECTION to the next session.
Honest caveats
- “Contraction” is partly mechanical: an outside bar engulfs the prior range, so it is a large-range bar by construction (1.22 ATR mean), and large bars are followed by smaller ones on average. The point of the study is to QUANTIFY that reversion (0.77×, 74.3%) and to test the direction question — not to claim contraction is surprising.
- The directional test uses only decisive bars (close in the top or bottom third). A finer test — magnitude of the close location, or conditioning on the prior trend (outside bar after a sell-off vs after a rally) — could still surface a reversal edge this coarse split misses.
- Universe is the same 15 mega/large-cap US names — all highly liquid. The effect may differ for low-float names where an outside bar can form on a single headline and carry more information.
- Daily OHLC only. Whether the next-day contraction is tradeable depends on intraday path; an intraday study would refine when the smaller range is established.
Methodology
1,475 outside-day events + 14,785 baseline events on 15 names (2022-01-03 – 2026-05-30) via Massive/Polygon daily bars. Outside day: strict engulf (today.H > prev.H AND today.L < prev.L). Contraction: next-day range (H-L) < outside-day range. ATR normalization uses Wilder ATR(14) strictly pre-signal. Close-location carry: loc = (close − low)/(high − low); bull bar loc > 0.66, bear bar loc < 0.33 (1,199 decisive bars) → predicts next-day close vs open. Bootstrap CI (n=5,000, seed=17). Engine: scripts/ml/backtest_outside_day.py. Run 2026-06-16.
Related: Inside Day · Gap Fill Rate · Day Types