Outside Days: How This Chart Pattern Can Guide Australian Investors in 2025

If you’re an active investor or even just dabble in Aussie shares, you’ve likely scanned a price chart filled with candlesticks—each one a record of market emotion. But among the sea of red and green, some days stand out: outside days. While rarely discussed outside trading circles, this pattern is attracting renewed attention in 2025 as market volatility and algorithmic trading reshape the ASX landscape. Could understanding outside days help you spot reversals and manage risk before the crowd? Here’s what every Australian investor should know.

What Are Outside Days? The Basics and Why They Matter

An outside day—sometimes called an engulfing day—occurs when the trading range of a security (from the low to the high) on a given day completely engulfs the previous day’s range. That means:

• The day’s high is higher than the previous day’s high

• The day’s low is lower than the previous day’s low

This pattern is easy to spot but rich with information. Outside days signal a burst of volatility and a battle between buyers and sellers. On the ASX, outside days have historically foreshadowed trend reversals or accelerations, particularly when they occur after a prolonged run-up or sell-off. With the Australian sharemarket more reactive to global news and algorithmic flows in 2025, outside days are appearing with greater frequency and are being closely watched by both institutional and retail investors.

Real-World Examples: Outside Days on the ASX in 2025

Take the recent action in BHP shares in February 2025. After a string of steady gains, BHP posted an outside day as China’s iron ore demand outlook shifted overnight. The stock opened lower, plunged to a new weekly low by midday, but then surged to close at a higher high than the previous day—an outside day in textbook form. Within a week, BHP’s trend reversed, with technical traders citing the outside day as the first warning shot.

Outside days aren’t just for blue-chips. ASX tech names like WiseTech and Xero have seen clusters of outside days amid earnings season volatility, often preceding sharp rallies or corrections. In fact, a recent 2025 study by the Australian Securities and Investments Commission (ASIC) highlighted an uptick in outside days during periods of heightened geopolitical tension and RBA rate decisions.

How to Use Outside Days in Your Trading or Investment Strategy

While outside days don’t guarantee a reversal, they’re a powerful alert that sentiment is shifting. Here’s how savvy investors are using them in 2025:

• As a warning sign: If you’re holding a stock that posts an outside day after a strong run, consider tightening stop-losses or reviewing your thesis.

• To spot potential entry points: Some traders look for confirmation (such as strong volume or a follow-through day) before initiating a new position, especially after a bullish outside day at the end of a downtrend.

• For risk management: Outside days often coincide with elevated implied volatility. Options traders may use this as a cue to adjust their hedges or capitalise on volatility spikes.

It’s important to combine outside days with other indicators—such as support/resistance levels, moving averages, or macro news—to avoid false signals. In 2025, with the ASX’s increased use of automated trading systems, outside days can sometimes be exaggerated by algorithmic flows, making context and confirmation more crucial than ever.

2025: Why Outside Days Are Back in Focus

The last 12 months have seen a surge in market-moving news, from RBA policy pivots to global tech shakeups. As a result, chart patterns like outside days are re-entering the mainstream. Several Australian brokers and trading platforms, such as SelfWealth and CommSec, have even added outside day alerts to their charting tools in response to user demand.

For investors seeking an edge in 2025, mastering outside days isn’t about predicting the future—it’s about recognising when the market’s story is about to change. With volatility here to stay, understanding these patterns could make the difference between riding a wave and being caught in the undertow.