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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Outside Days

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Candles Chart
Small Patterns
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/27/2017
20,551 -45.74 -0.2%
8,935 6.33 0.1%
702 -3.50 -0.5%
5,840 11.63 0.2%
2,342 -2.39 -0.1%
Tom's Targets    Overview: 03/14/2017
20,100 or 21,250 by 04/15/2017
8,500 or 9,500 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,275 or 2,425 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

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For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., (a later edition is pictured), pages 404 to 416. Below is updated performance information based on tests in January 2013. Also note that this pattern is only in the first edition of the Encyclopedia.

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The Outside Day pattern
Outside Day


Important Bull Market Results for Outside Days

Overall performance rank (1 is best)**: 6/23
Break even failure rate*: 32% (up breakouts)
Average rise*: 10%
Percentage meeting price target*: 82%
The above numbers are based on hundreds of perfect trades as of 2/21/2013. See the glossary for definitions.
* Based on the trend high, not the ultimate high. See text.
** From the first edition of my Encyclopedia of Chart Patterns.
** Based on the average rise compared to other small patterns with upward breakouts in a bull market

Outside Day Identification Guidelines

Price trendThere is no requirement of a price trend leading to the outside day. However, the trend is upward 53% of the time.
2 daysOutside days are a two-bar pattern.
ShapeLook for a higher high and lower low on the second day. The price bar fits outside the prior day's range.
First BarThe first bar cannot have the high price equal to the low price. In other words, it cannot be a four price doji (open = high = low = close price).
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Outside Day Trading Tips

Trading TacticExplanation
ContinuationThe pattern acts as a continuation 63% of the time (bull market, upward breakout).
Trade with the trendSince outside days act as continuation patterns, expect the breakout to be in the same direction as the inbound price trend.
BreakoutA breakout occurs when the stock closes either above the top of the pattern or below the bottom of it.
Half-staffThe outside day can form midway in a price trend, just like flags and pennants.

Outside Day Example

Outside Day in 3M

I shows two outside days on the daily chart.

The first outside day occurs in early December when the stock makes a wider trading range than the prior day. Price trends upward leading to the outside day and breaks out upward, too. That means this pattern acts as a continuation pattern. The breakout occurs when price closes above the top or below the bottom of the two-day pattern.

The late December outside day acts as a reversal. Price enters the pattern from the top and exits (breaks out) out the top, too.

Notice that the early December outside day is midway in the run from the November bottom to mid December peak.

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Outside Day Performance Statistics

For the following statistics, I used 1,258 stocks, starting from December 1989 to January 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were numerous, I accepted only one in ten samples. Nevertheless, that gave me 29,725 samples. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market. At the time this article was written, there were no bear markets in the 2010s (and none in the 1990s). I placed N/A in the table accordingly.

For each outside day pattern, I found where the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 10 days (21 days total) each, before the outside day and the same peak/valley test after the outside day. The closest valley or peak before the outside day is where the trend began. The closest peak or valley after the outside day is where the trend ended.

The 10-day peak or valley number tends to find major turning points.

I measured performance from the breakout price (the second day's high or low in the pattern, depending on the breakout direction) to the nearest trend peak or trend valley after the breakout.

Table 1: Performance After the Outside Day Pattern
 Market Type, Breakout Direction  1990s  2000s  2010s 
Bull market, up breakout10.2%10.0%8.9%
Bull market, down breakout-9%-7.5%-7.0%
Bear market, up breakoutN/A11%N/A
Bear market, down breakoutN/A-16%N/A

Table 1. What I find interesting in this table is the gradual performance deterioration of outside days over time. In the 1990s, an upward breakout from outside days averaged a gain of 10.2%, excluding dividends, trading commissions, fees and so on. In the 2000s (bull market only), the average gain dropped to 10.0%. For the 2,134 samples in the 2010s, the average gain is just 8.9%.

To put this in a wider context, it is 13% harder to make money today than it was in the 1990s! To put it another way, the average market trend is 13% shorter today than it was two decades ago. Other chart patterns, such as the shark-32 and inside day show larger values.

This is not a new finding. I reported similar behavior in a recent study.

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Outside Day: Inbound Price Trend versus Performance

Table 2: Performance vs Inbound Trend
 Market Type, Breakout Direction Up
Bull market, up breakout10%9%
Bull market, down breakout-7%-8%
Bear market, up breakout11%10%
Bear market, down breakout-14%-16%

Table 2 shows the performance of stocks after the outside day pattern when sorted by the direction of the inbound price trend. The results include all samples, sorted by a bull or bear market.

For example, if price is trending upward leading to the outside day and the pattern has an upward breakout, the average gain in a bull market is 10%. The outside day acts as a continuation pattern (a continuation of the up trend). Oddly the market type (bull or bear) did not influence upward breakout performance.

If the inbound trend is up but the breakout is down (meaning the outside day acts as a reversal), the average drop measures 7% in a bull market but 14% in a bear market.

Outside Day: Reversal versus Continuation Performance

Table 3: Performance vs Reversal or Continuation
 Market Type, Breakout Direction  Reversal  Continuation 
Bull market, up breakout9%10%
Bull market, down breakout-7%-8%
Bear market, up breakout10%11%
Bear market, down breakout-14%-16%

Table 3. Which perform better, continuations or reversals? The table shows the answers sorted by market condition and breakout direction..

In all types of market conditions (bull or bear) and breakout directions (up or down), outside days that act as continuations of the price trend outperform reversals.

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Outside Day Failure Rates

Table 4: Failure Rates
 Market Type, Breakout Direction  5% Failure  Average 
Bull market, up breakout32%10%
Bull market, down breakout40%-8%
Bear market, up breakout28%11%
Bear market, down breakout21%-16%

Table 4 shows the failure rate sorted by market condition and breakout direction along with the average rise or decline for the associated conditions.

For example, in a bull market after an upward breakout, 32% of outside days fail to see price rise at least 5%. That's huge. Long chart patterns (such as double bottoms), often have failure rates in the single digits, but performance is measured differently (the performance numbers listed in these tables measure from the breakout to the trend high or low, which is often the first major high or major low. Double bottoms look for a 20% trend change to end the trend. That's a big difference).

Another example from the table shows that 21% of outside days fail to drop at least 5% after a downward breakout in a bear market. That is the lowest failure rate in the table. That makes sense since the average drop is 16%. The highest failure rate is 40% and the average drop is just 8%.

Outside Day Measure Rule

Table 5: Measure Rule Performance
 Market Type, Breakout Direction  Success 
Bull market, up breakout82%
Bull market, down breakout73%
Bear market, up breakout75%
Bear market, down breakout78%

The measure rule is simply the height of the chart pattern added to the top of the pattern (for upward breakouts) or subtracted from the bottom of the chart pattern for downward breakouts. Table 5 shows how often this rule works for outside days.

The best performance comes when the breakout direction agrees with the market trend. That is, upward breakout in a bull market or downward breakout in a bear market. The rule works 78% to 82% of the time.

Making a contra-trend trade results in inferior performance with the measure rule working between 73% and 75% of the time. In other words, go long in a bull market and short in a bear market. There's your proof that it helps.

Outside Day Half Staff

Table 6: Half-Staff Position
 Market Type, Breakout Direction  Success 
Bull market, up breakout51%
Bull market, down breakout52%
Bear market, up breakout54%
Bear market, down breakout50%

Table 6 shows where in the price trend the outside day appears. A value of 50% is the best since it's midway along the trend. The trend measures from the trend star to the trend end. You can think of this as swing low to swing high with the outside day somewhere near the middle.

The table shows that outside days, where the pattern acts as a continuation of the trend (not a reversal) is near the middle of the trend. The numbers are averages but with such a high sample count, the median values are similar.

Outside Day Trading Performance

Table 7: Testing the Outside Day
Market/Breakout direction Bull/Up  Bull/Down  Bear/Up  Bear/down 
Net profit/loss$90.16$(77.81)$(87.28)$73.88
Winning trades7,1424,7291,4011,721
Average gain of winners$702.71$744.22$714.69$768.95
Losing trades5,2736,2271,6881,497
Average loss($739.51)($702.09)($752.89)($725.20)
Average hold time (calendar days)29271714

Table 7 shows the performance based on 29,678 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No adjustments were made for interest, fees, slippage and so on.

The results are sorted by bull or bear market, up or down breakouts. The trades used the same setup as listed in Outside Day Performance Statistics.

Here's the setup.

  • Find an outside day
  • If price closes above the pattern's high, buy at the open the next day.
  • If price closes below the pattern's low, short at the open the next day.
  • Sell/cover when price moves 7% in the direction of the breakout.
  • If price moves 7% in the direction opposite the breakout, close out the trade for a loss.

For example, in a bull market after an upward breakout from an outside day, the net gain was $90.16 for all trades. The method won 58% of the time and there were 7,142 winning trades. The average gain of winning trades was $702.71.

Forty-two percent, or 5,273 trades were losers. They lost an average of $739.51.

The average hold time was 29 days.

Notice that gains and losses hovered around 7%, which is how the test was structured.

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Outside Day Trading Performance With Pattern Stop

Table 8: Testing the Outside Day with Pattern Stop
Market/Breakout direction Bull/Up  Bull/Down  Bear/Up  Bear/down 
Net profit/loss$62.20$(44.31)$(81.01)$58.51
Winning trades5,8634,0011,3731,666
Average gain of winners$704.00$740.75$713.78$768.16
Losing trades6,6096,9901,7171,554
Average loss($507.16)($493.67)($716.57)($702.29)
Average hold time (calendar days)19161512

Table 8 shows the results of 29,773 trades, but this time, a penny below the bottom of the outside day (upward breakout) or a penny above the top of the outside day (downward breakout) was used as a stop instead of a 7% stop.

In a bull market, the average loss dropped substantially when compared to the 7% loss setup. In a bear market, the loss also narrowed, but not as dramatically. However, the win/loss ratio deteriorated, making the net gain marginally better in two cases and worse in two cases.

Outside Day Trading Example

Outside Day in 3M

The chart shows an example of how the performance was measured on the daily chart in 3M (MMM).

The outside day is shown in the inset. The buy price is at the opening price the day after the stock closes above the top of the taller of the two bars (A). That is at a price of 94.19. Adding 7% to this gives a target (C) of 100.78.

Had the upward breakout turned down before reaching C, a stop 7% below the buy price (87.60, not shown) would have closed out the trade.

If using the pattern stop, a penny below the low at B would serve as a stop.

-- Thomas Bulkowski

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See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Q: How can you tell if a man is happy? A: Who cares?