Technical analysis is clear on what is an outside reversal day and what it means
This was a question in our comment section:
"Can anyone give a brief about outside day reversal. Eurjpy managed to close off from the lows. Will this still be considered outside day? Thanks."
The reader was asking about the daily EUR/JPY chart.
This is a close up ... He is referring to the second last candle (the one I have the arrow pointing at):
The answer is that this is not an outside day reversal, at least not a textbook example.
Here's what I look for for an "outside day reversal"
- To be of any relevance there must be a prior directional swing, otherwise there is nothing to reverse
The outside reversal candle has to have
- A higher high than the previous candle
- And a lower low
The outside reversal candle will be more convincing if the close is below the previous candle's close.
Here is a great example of an outside reversal day that we picked out in real-time at Forexlive.
The chart is from a post on October 1, 2014 highlighting an unfolding outside day reversal in USD/JPY.
It said:
"Citi was out with a note earlier comparing a reversal on the first trading day of Q4 to the first trading day of Q1. That move skidded down to the 50% retracement of the recent rally. A similar fall this time would target 105.58."
What was the low two weeks later? 105.23.