Trading the Euro

Posted by Scriptaty | 9:36 PM

Outside bars and inside bars: The definitions are simple, but the interpretation is a different story.

An outside bar has a higher high and lower low than the immediately preceding bar, while an inside bar as a lower high and higher low. An outside bar represents a one-day volatility increase, and the degree of the surge depends on how much wider the outside bar is than the preceding bar(s). An inside bar is the opposite — a volatility contraction.

What happens after these bars can be affected by many things — what occurred the day of the outside bar (as reflected in where it opens and closes), the nature of the preceding price action, the range of the outside bar, and so on.

Studying the characteristics and aftermath of inside and outside days in the Eurocurrency (EC) futures highlights certain characteristics — including some surprising ones — that point toward useful ways to trade these patterns.