Double Inside Day, What's Next: Wider Bar, One Side

A Double Inside Day is two Inside Days (ID) in a row. The second bar sits inside the first, and the first sits inside the bar before it. That outer bar is the mother. The second day is inside the mother too. The question is the next session.

 

 

 Dow (YM), Oct 27, 2026, NR7, ID, IDnr4, 2BNR, Double Inside Day (gold-colored bars)—its narrowest range in 11 sessions:

The October 28 setup offers no directional bias for the breakout. However, the YM breaks to one side 90% of the time

and prints an Outside Day (OD) only 10% of the time—in other words, just once since 2020.

In the Crabel Pattern Scanner database (January 1, 2020 to date) are 250 of them, 0.7% of these sessions. Futures had 79. FX had 171. The E-mini S&P printed 5. The Mini Dow (YM) printed 10. Another is open now and is not in the count: October 27 sits inside October 26, and October 26 sits inside the October 23 Outside Day (OD).

The Next Bar Is Wider. And it is usually not an Outside Day (OD): The next range was wider on 79.2% of them, against 49.0% on any day. The median was 1.48 times the second Inside Day (ID). Futures were wider 63 times in 79, median 1.58. FX was wider 78.9% of the time, median 1.44. A third Inside Day (ID) came 5.2% of the time, against a 12.6% base, and on 5.1% of the futures cases. An Outside Day (OD) came 17.6% of the time, and 10.1% on the futures, which is under the 11.2% futures base. The break is one side of the second Inside Day (ID): 77.2% overall, 84.8% on the futures. 

Read the green names as the same result on more days, not as a separate system. The rose name failed to expand: USD/CAD, 50% of 8. A cell with fewer than four cases is left plain. None of these names are that small.

Six instruments never printed an Outside Day (OD) after a Double Inside Day: the E-mini S&P (ES), Nasdaq (NQ), Crude (CL), the Canadian Dollar (USD/CAD), the Kiwi (NZD/USD), and the Rand (USD/ZAR). Crude, 9 of 9, and the Kiwi, 7 of 7, left through one side every time. The other four each stayed inside once.

One Side Breaks: The pattern does not say which. High only and low only split 92 against 101. The next close was up 51.2% of the time, against 51.3% on any day. There is no side in the pattern. The side is decided by the next open, not by the two Inside Days (ID). Of the one-sided breaks, the close finished beyond the broken extreme 45.6% of the time. The rest came back inside. Futures held it 47 of 67. Across all 21 that is not a rule. The direction is not either. The mother bar was tagged, high or low, on 58.8% of the next sessions, and the close finished beyond it on 16.0%. Do not require the outer bar to give way the same day. The trade is the break of the second Inside Day (ID). The Mini Dow's (YM) ten completed cases were wider nine times. 

Green marks a close that held the one-sided break: the E-mini S&P (ES), Nasdaq (NQ), Bitcoin (BTC), and Gold (GC). Rose marks a close that came back inside, which is most of the FX pairs, or a next close that was up on 40% of the days or fewer: Sterling (GBP/USD), the Aussie (AUD/USD), and the Mexican Peso (USD/MXN). Use the green as the hold. Do not trade the rose as a side.

The Day Itself 

The second Inside Day (ID) is the tight end of the coil. Its range is a median 0.68 of the first Inside Day (ID) and 0.43 of the mother. It is also an NR4 on 84.8% of these days, and on 92.4% of the futures cases. The mother was itself an Outside Day (OD) 20.0% of the time, and 19.0% of the time on the futures. That is the sequence on the Dow (YM) this week. An Outside Day (OD), then two Inside Days (ID). The contraction is real. It is also rare. An ordinary Inside Day (ID) is a much more common pause. This is the pause that got smaller again.

 

 The Next Session

The next range was wider on 79.2% of the 250, against 49.0% on any day. The median was 1.48 times the second Inside Day (ID). Futures were wider 63 times in 79, a median 1.58. FX was wider 78.9% of the time, a median 1.44. A third Inside Day (ID) came 5.2% of the time, against a 12.6% base, and on 5.1% of the 79 futures cases.

 

The break was one side of the second Inside Day (ID) on 77.2% of sessions, and on 84.8% of the futures. An Outside Day (OD) came 17.6% of the time, and 10.1% on the futures, which is under the 11.2% futures base. Do not wait for the next bar to engulf. The expansion leaves through one side.

 

See also:

 TPR (2026) - Trading Toby Crabel Patterns.

Carlo Zarattini et al. (2024) - The 5-Minute Opening Range Breakout (ORB) Strategy.

TPR (October 26, 2026) - S&P 500 November Seasonality in Midterm Election Years.

Outside Day, What's Next: Contraction, Not Continuation

An Inside Day (ID) is contraction. An Outside Day (OD) is one form the subsequent expansion can take. Across 7 futures markets and 14 FX pairs, the expansion is real, but the Outside Day (OD) remains the minority outcome. Since January 1, 2020, an Outside Day (OD) has occurred in about 9–13% of sessions. After an Inside Day (ID), that rises to 14–24%.

 

Outside Day, What's Next? Crabel Pattern Statistics across 7 futures markets and 14 FX pairs, from 2020 to date.  

After an IDnr4, the rate is usually a little higher, reaching about 30% on the Swedish Krona (USD/SEK). That is roughly twice the baseline rate. It is not a coin flip, and it is not a rule. 

 

On the E-mini S&P 500 (ES), 42 of 184 Inside Days (ID) were followed by an Outside Day (OD): 22.8%, against a baseline of 12.5%. The other 142 were not. For the E-mini S&P 500, an IDnr4 did not improve the rate: it remained 22.8%. But it did raise the rate for the Dow (YM), from 22.3% to 27.5%; Gold (GC), from 18.2% to 27.1%; and most major FX pairs.

 

S&P 500 E-mini Futures (daily bars): Outside Days (OD) and Inside Days (ID).

OD: A bar whose high is above the previous high and whose low is below the previous low, so the session takes out both sides of the prior bar. ID: A bar whose high is below the previous high and whose low is above the previous low, so the session sits inside the prior bar. 

Futures show a cleaner pattern than FX. The E-mini S&P 500 (ES), Nasdaq-100 (NQ), Dow (YM), Crude Oil (CL), and Natural Gas (NG) sit around 21–24% after an Inside Day (ID). The Euro (EUR/USD), Yen (USD/JPY), Forint (USD/HUF), and Rand (USD/ZAR) are closer to 14%. The pattern is the same, but the lift is smaller in FX pairs whose daily bars are defined by the New York session, even though the underlying market trades nearly around the clock.

 

 Nasdaq-100 (NQ), Oct 20, 2026: Outside Days (OD) and Inside Days (ID).

  

What That Means

An Inside Day (ID) tells that the session stayed within the prior day's range. That is balance, not direction. The next session must make the decision. Crabel's framework is that contraction precedes expansion. The trade is the breakout in the next session, not a bet that the next bar will be an Outside Day (OD).

 

An Outside Day (OD) is the loud version of expansion: price takes out both extremes of the prior bar. But expansion can take quieter forms—a break of only one side, a trend day that never reaches the opposite extreme, or a move beyond the range that subsequently returns inside. Those moves can still deliver the expansion the setup was designed to capture. Waiting for an Outside Day (OD) means passing up most of the trades the pattern is meant to produce.

 

IDnr4 is the tighter version of the setup: the bar is inside the prior bar and has the narrowest range of the past four sessions. Crabel preferred it to an Inside Day (ID) alone, an NR4 alone, or an opening-range breakout (ORB) taken indiscriminately every day. The data broadly support that preference. In the table above, the Outside Day (OD) rate after an IDnr4 is usually a little higher than after a plain Inside Day (ID). But even here, an Outside Day (OD) remains the minority outcome.

 

 Crude Oil (CL), Oct 21, 2026: Outside Days (OD) and Inside Days (ID).

What the Other Work Says

► Crabel trades the next session as a two-sided opening-range breakout (ORB) after an ID or IDnr4, unless the market is already running. In that case, he places the stop against the prevailing move and takes only the breakout in its direction. A wide-range day (WS) or an Outside Day (OD) means the expansion has already happened. It is not a fresh setup.

 

► Larry Williams treats the Inside Day (ID) as congestion and a potentially reliable short-term signal, but his published application is directional. In his course material, an Inside Day (ID) with a down close, when price was already below its level ten days earlier, was followed by a higher close the next day about 71% of the time in the S&P. That is a directional bias, not a breakout rule.

 

Williams' Outside Day Rule is a separate trade. An Outside Day (OD) that closes below the prior day's low is a buy; one that closes above the prior day's high is a sell. The logic is that the close signals rejection of the move beyond the prior extreme. Williams is fading the Outside Day (OD), not predicting that one will follow an Inside Day (ID) .

 

► Connors and Raschke took Crabel's IDnr4 setup and added explicit trade management. In Street Smarts, the rule is to place a buy stop one tick above the IDnr4 and a sell stop one tick below it for the next session only. If stopped out, reverse the position. If the trade is not profitable within two days, exit at the close.

 

Their central insight is useful: one can anticipate volatility expansion without knowing its direction. They also required a volatility filter—six-day historical volatility below half the 100-day reading—before taking the ID or NR4 setup (Street Smarts: The ID/NR4 Rules). The same idea appears in the popgun pattern, an Inside Day (ID) followed by an Outside Day (OD), and in the NR7-Inside hybrid. 

 

Later tests of a plain 30-minute opening-range breakout after an Inside Day (ID) have not consistently outperformed taking the breakout every day. Contraction narrows the opening range (ORB), but it does not, by itself, guarantee a better close-to-close result. 

 

What to Do After an ID or IDnr4

Do not enter on the bar that just printed. The pattern is yesterday's; the trade is in the next session. Prefer IDnr4 to a plain Inside Day (ID). The range is tighter, the contraction more pronounced, and in the Crabel Pattern Scanner sample the probability of a subsequent Outside Day (OD) is usually a little higher.

 

Use a two-sided breakout unless the intermediate trend is already running. If it is, take only the breakout in the trend's direction. A gap aligned with the run supports continuation; a break against it is the one to skip.

 

The entry is a break of the Inside Day's high or low, or a breakout from the Opening Range (OR) using Stretch—not a hope that the session will become an Outside Day (OD). If price breaks one side and holds, that is the trade. If it breaks both sides and closes back inside, the expansion has failed (Connors and Raschke's dual-stop version).

 

Expect an Outside Day (OD) roughly one session in four or five after an Inside Day (ID) in futures, and closer to one in six or seven in the quieter FX pairs. Size the trade for the more likely alternative. Most sessions will not engulf the prior range.

 

If the next session does produce an Outside Day (OD), the expansion has already occurred. Do not treat that bar as a fresh contraction setup. Williams would instead examine where it closed. A close below the prior low is his buy signal; a close above the prior high is his sell signal. That is a separate reversal trade, distinct from the breakout that followed the Inside Day (ID).

 

Stand aside when the Inside Day (ID) forms in choppy conditions with no established trend, or when the market opens beyond both sides of the range before you can execute the setup. The pattern is a contained session followed by a decision. If the market has already made that decision at the open, the setup is gone.

 

 British Pound (GBP/USD), Oct 20, 2026: Outside Days (OD) and Inside Days (ID).

See also:

Toby Crabel (1990) - Definition of Price Patterns.

 TPR (2026) - Trading Toby Crabel Patterns.

TPR (2026) - Inside Day, What's Next: Continuation, Reversal, or No Trade. 

TPR (2026) - Wide Spread 7, What's Next: Smaller Range, No Follow-Through. 

Larry Williams (1998) - Outside Bar Trading Setups.

Inside Day, What's Next: Continuation, Reversal, or No Trade

An Inside Day (ID) is contraction and has two main interpretations: continuation or reversal. The context determines which is more likely.

► Continuation: When the market is already running, the Inside Day (ID) is a pause within the prevailing move. Toby Crabel takes only the breakout in the trend's direction, placing the stop against the prevailing move. A breakout aligned with the run favors continuation; a break the other way is a skip. This is the more common case, accounting for about six Inside Days (ID) in ten.

► Reversal: When an Inside Day (ID) follows an Outside Day (OD), it marks a pause after expansion and may precede a turn. Larry Williams fades an Outside Day (OD) that closes beyond the prior bar's extreme: a close below the prior low is his buy signal; a close above the prior high is his sell signal. The Inside Day (ID) is then the contraction before a potential reversal, not a reason to chase the Outside Day (OD).

In either case, the signal sets up the next session's trade. The Inside Day (ID) itself is not the entry.

Inside Day, What's Next? Crabel Pattern Statistics across 7 futures markets and 14 FX pairs, from 2020 to date.

 

S&P 500 E-mini Futures (daily bars): Outside Days (OD) and Inside Days (ID).

OD: A bar whose high is above the previous high and whose low is below the previous low, so the session takes out both sides of the prior bar. ID: A bar whose high is below the previous high and whose low is above the previous low, so the session sits inside the prior bar. 

Do Not Wait for an Outside Day

An Outside Day (OD) follows an Inside Day (ID) roughly twice as often as its 9–13% baseline rate, but it remains the minority outcome. In futures, the rate is generally around 18–24%. After an IDnr4—a bar inside the prior bar with the narrowest range of the past four sessions—the probability often rises further.

 

Green cells in the table above — 25% or higher after an IDnr4:

● Dow (YM): 27.5%

● Gold (GC): 27.1%

● Natural Gas (NG): 26.5%

● British Pound (GBP/USD): 25.8%

● Australian Dollar (AUD/USD): 27.0%

● New Zealand Dollar (NZD/USD): 28.3%

● Swedish Krona (USD/SEK): 29.9%

 

Rose cells — 16% or lower after an IDnr4: 

● Euro (EUR/USD): 13.7%

● Yen (USD/JPY): 14.3%

● Forint (USD/HUF): 14.5%

● Rand (USD/ZAR): 13.9%

● Yen crosses

 Mini Dow ($5) (YM), Oct 20, 2026: Outside Days (OD) and Inside Days (ID).

The practical distinction is clear: favor the breakout when the IDnr4 signal is stronger, but do not wait for an Outside Day (OD) to engulf the prior range. That happens in only a minority of cases, even in the stronger markets. The breakout—not the Outside Day (OD) itself—is the trade.

 

Prefer an IDnr4 to a plain Inside Day  (ID) when the setup is otherwise valid. If the market is choppy, with no established trend and no preceding Outside Day  (OD) to frame a potential reversal, stand aside. The pattern is yesterday's; the trade is in the next session.

 

 Swedish Krona (USD/SEK), Oct 20, 2026: Outside Days (OD) and Inside Days (ID).

 

See also:

Toby Crabel (1990) - Definition of Price Patterns.

TPR (2026) - Trading Toby Crabel Patterns.

TPR (2026) - Outside Day, What's Next: Contraction, Not Continuation. 

TPR (2026) - Wide Spread 7, What's Next: Smaller Range, No Follow-Through.

Larry Williams (2026) - Small Ranges Beget Large Ranges.

Larry Williams (1995) - An Outside Look at Inside Days.

Toby Crabel (1990) - Inside Days in the S&P 500. 

An Outside Look at Inside Days | Larry Williams

First, lets define what constitutes an inside day. An Inside Day is exactly the opposite of an Outside Day. That is, today’s high is less than yesterday’s high and today’s low is greater than yesterday’s low. Hence the terminology inside day, as all of today’s price range or trading activity took place inside of yesterday’s range. An inside day is usually thought to be an indication of congestion. A price could not exceed the previous day on the upside nor could it break below the previous day’s low on the downside.

 » Inside Days are one of the most reliable forecasting patterns to occur in the marketplace. «

 

Chartists and authors have not paid very much attention to the inside days over the years. They have made note of them, but this is the first time, to my knowledge, that anyone has made a serious study of the impact of inside days. And, wouldn’t you just know it … inside days are one of the most reliable forecasting patterns to occur in the marketplace!

  » In a study of nine major commodities covering 50,692 trading sessions, I noted 3,892 inside days,

suggesting we will see these days appear about 7.6 percent of the time. «
Larry Williams, 1998.

There does seem to be some validity to this. The following chart shows what happens when we have an inside day with a down-close while prices are lower than they were 10 days ago. In the Standard and Poor’s, 71% of the time you were higher the next day. This may not even be as significant as the fact that 71% of the time you were higher 20 days after this occurrence. In the Value Line, price is higher 50% of the time after the occurrence, and in Treasury Bonds it’s higher 75% of the time. The pattern in Silver was not nearly as bullish, which surprises me because I had used this trading technique in Silver with some success … which just goes to show you! In Silver, on 36% of the time you were higher 20 days following the occurrence of the pattern. Soybeans were higher 57% of the time, Bellies 50% of the time and the Swiss Franc, where so far we have not found a pattern that forces prices higher, you were up only 22% of the time.

Inside Days in the S&P 500 - Toby Crabel, 1990.

For a moment though, let’s take a look at just the occurrence of an inside day. What happens when we simply have an inside day with a down-close? Does that, on its own merit, forecast any significant market activity? The results are on the next few pages [of 'The Future Millionaire's Confidential Trading Course']. What can you find?

Then there’s the other side of this coin. What happens if we have an inside day with an up-close? Does this forecast positive action? It appears that it does to some extent. Study the tables for yourself. I have gone to the computer to give you the results for almost all possible configurations of the inside days. While, quite frankly, much of the data suggests random-gibberish-behavior, others are relationships that you can find and successfully trade with. What you need to focus on here is not that the patterns will always work for you, but that patterns, like methods, systems and tools, will give you the much needed odds that lead to successful speculation.

 

I have not exhausted all possible ways of looking at inside days with down-closes, though I have looked at the majority of the relationships one can study. There are others. As an example, what happens if the prices are higher, or if prices are lower following an inside day five days later. Does that mean that the down trend will continue? One could also ask the questions about an outside day following an inside day. Is this a particularly bullish pattern? (It is.) As you can see, your opportunity for research here is unlimited. If you have a computer, some data, and a desire to study the markets, here is fertile ground for you to come up with your own great ideas.

Quoted from:
Larry Williams (1995) - An Outside Look at Inside Days.

An excerpt from 'The Future Millionaire's Confidential Trading Course'.

 

See also:

Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout. 

Toby Crabel (1990) - Inside Days in the S&P 500. 

Larry Williams (1998) - Long-Term Secrets to Short-Term Trading, 2nd Edition. 

Johnan Prathap (2011) - Three-Bar Inside Bar Pattern.

Narrow Range 4, Narrow Range 7, and Inside Days | Toby Crabel

Narrow range patterns were described by Tony Crabel in his book, "Day Trading with Short Term Price Patterns & Opening Range Breakout". Even though it was published in 1990, many of Crabel's concepts and set-ups are still effective, and in particular his NR4 (Narrow Range 4) and NR7 (Narrow Range 7) patterns became quite popular with short-term traders. 

 

The idea for set-ups is similar to the Bollinger Band Squeeze or Short-Squeezes and Long-Squeezes in general: a volatility contraction is followed by a volatility expansion; narrow range days mark price contractions that precede price expansions. The NR7 day and the NR4 day as such are 'neutral' when it comes to future price direction, and other tools need to be employed to determine directional bias. 

 

Because NR4/NR7 days are relatively commonplace and the range is small by definition, the chances of whipsaw are above average. A break above the NR7 high can fail and be followed by a break below the NR7 high. Just be aware of this probability and keep the bigger picture in mind. In other words, be wary of sell signals within a bullish pattern, such as a falling flag or at a support test.

 

Examples of Narrow Range 7 Inside Days (IDnr7) in the Nasdaq.

Traders will want to qualify NR7 signals because they are quite frequent. A typical instrument will produce dozens of NR7 days in a twelve month period and a daily scan of US stocks will often return hundreds of stocks with NR7 days. Traders can increase or decrease the number of narrow range periods to affect the results. 

 

A decrease from NR7 to NR4 would increase the number of instruments fitting the criteria, while an increase from NR7 to e.g. NR20 would decrease the number of signal days. Consider NR7 and NR4 days that are at the same time Inside Days (IDnr4, IDnr7) also as signal days (see chart above).

Strategy: This strategy starts with the day's range, which is simply the difference between the high and the low. Crabel used the absolute range, as opposed to the percentage range, which would be the absolute range divided by the close or the midpoint. Because we are only dealing with four and seven days, the difference between the absolute range and percentage range is negligible. 

 

Crabel focused on two different narrow range timeframes: four days and seven days. An NR4 pattern would be the narrowest range in four days, while an NR7 would be the narrowest range in seven days. It is a very short-term pattern designed to initiate a trade based on an "Opening Range Breakout", which is another term from Crabel's book. Look for an upside breakout when prices move above the high of the narrow range day and a downside breakdown when prices move below the low of the narrow range day.

Bull Signal:

1. The daily bias is bullish.
2. Identify a NR4, a NR7, an IDnr4 or an IDnr4 day.
3. Buy on move above high of narrow range day high.
4. Set trailing stop-loss.

Bear Signal:

1. The daily bias is bearish.
2. Identify a NR4, a NR7, an IDnr4 or an IDnr4 day.
3. Sell on move below low of narrow range day low.
4. Set trailing stop-loss.

Targets: Because this is a short-term setup, it is important that the trade starts working right away. Failure to continue in the direction of the signal is the first warning. After a buy signal, a move below the low of the narrow range day would be negative. Conversely, a move above the high of the narrow range day would negate a sell signal. Consider profit targets and stop-losses. 

 

Crabel took profits quite quickly, usually at the close of the first trading day or on the first profitable close. Again, this is very short-term-oriented and might not be suitable for all traders. Alternatively, profits can be taken near the next resistance levels or a percentage target can be used. Base stops on previous highs and lows, the Average True Range (ATR), etc. For example, the stop-loss on a long position could be set two ATR values below current prices and trailed higher.

 

Reference:
Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout.

Toby Crabel (1990) - Inside Days in the S&P 500.

 Oddmund Groette (2023) - NR7 Trading Strategy (We Improved It).
Oddmund Groette (2023) - Inside Day Trading Strategy – Does It Work? (Backtest). 

TPR (2023) - Trend Continuation Entry Strategies.

Inside Days in the S&P 500 | Toby Crabel

Toby Crabel (1990) - Computer studies suggest that Inside Days (ID) provide very reliable entries in the S+P market. The data used in the studies is daily open, high, low and close prices from 1982 to 1987. All of the following patterns are defined for a computer but can be seen easily on a daily bar chart.

• Pattern (1) is simply an inside day followed by a sale (s) on a lower open or buy (b) on a higher open. Entry is on the open with an exit on the same day's close with no stop. This procedure produced sixty-eight percent winning trades with profits of $18,000 after an $18 commission. This is a reasonably high percentage and suggests a strong bias in the direction of the open after any ID.

• Pattern (2a) is defined as an ID with a higher close than the previous day followed by a higher open. A buy is taken on the open and exited on the close. The same is done on the sales (Pattern (2b)) if there was an ID with a lower close followed by a lower open. Again, stops were not used. There were forty-four trades as such with seventy-four percent of them profitable. Net profit was $14,914. The percentage has improved and profits are better per trade than Pattern (1). This supports the premise that the closing effects the next day's action and potential breakout. Further tests uncover some variations to above results. Although the opening direction after an inside day appears to be a valid indicator of upcoming direction, there are same specific patterns that show very high percentage profitability without the use of the previous day's closing direction. Specifically, two patterns; one a sale (Pattern (3)), one a buy (Pattern (4)).

• Pattern (3): The day of entry is called Day 1. The day of immediately preceding the entry is Day 2 and each preceding day - 3, 4, 5, etc. On Day 1 an open lower than Day 2's mid-range and lower than Day 2's close is necessary. Day 2 must be inside of Day 3. Day 3 must have a higher low than Day 4. A sale is made on the open of Day 1 with exit on the close of Day 1. Profits were eighty percent with winning trades five times the size of losing trades. The only shortcoming is that only ten trades could be found from 1982-1987.
  

• Pattern (4) is similar to Pattern (3) with opposite parameters. The only exception is the open on Day 1 need only to be higher, not above mid-range. So to review Pattern (4), Day 1 a higher open than Day 2. Day 2 inside Day 3. Day 3 lower high than Day 4. Results were as follows: Ninety-one percent profits; 860 to 820 average winner to average loser. No stops were used.  Only eleven patterns to the upside were found.

The market action implied in each pattern is a short-term trend with a loss of momentum on the Inside Day.  The open on Day 1 is in the opposite direction of the trend and is an indication of a shift in sentiment. This shift in sentiment causes those who still have existing positions against the opening direction to liquidate longs or cover shorts. Participants covering their positions is more than enough to tip off a directional move.

A slightly different perspective on the same type of pattern is to look for a retracement to the previous day's close after the opening and take a position at that point in the direction of the open. I tested four patterns to demonstrate this principle.

• Pattern (5) shows an Inside Day with a lower close on Day 2 than Day 3.  Day 1's open is above Day 2's close. The chances are sixty-two percent that the market will close above Day 2's close on Day 1.
• Pattern (6) is an Inside Day on Day 2 with a higher close than Day 3. Day 1's open is above Day 2's close. The chances are seventy-nine percent that the market will close above Day 2's close on Day 1.
• Pattern (7) shows an Inside Day on Day 2 with a lower close than Day 3's close. Day 1's open is below Day 2's close. The chances are fifty-nine percent that the close on Day 1 will be lower than Day 2's close.
• Pattern (8) shows an Inside Day on Day 2 with a higher close than Day 3's close. Day 1's open is below Day 2's close. There is a sixty-seven percent chance that the market will close below Day 2's close on Day 1.

How can you use this information? It suggests a strong bias in the direction of the open especially after a higher open. The prolonged bull market obviously had an impact on these results but in general, a counter move back to Day 2's close after the opening direction is known, should be observed for a loss of momentum and possible entry in the direction of the open.
 
Another totally different test in the S+P has same interesting implications and could be tied in with the previous patterns. On any day that the market has moved two hundred points above the open intra-day, it has closed above the open ninety percent, of the time. Also, on any day that the market has moved two hundred points below the open it has closed below the open eighty-eight percent of the time. This was during the period from 1982-1988.

An application of these results is as follows: Enter in the direction of the initial trend on any low momentum move back to the open and exit on the close of the session. This can be done after the initial trend is established with a two hundred point move in one direction off the open. The main qualification is price action on the pullback. A high momentum move back through the open leaves the initial two hundred point move in question. This can also be applied after an Inside Day very effectively.

I think it is necessary to shed light on how extraordinary the results for Inside Days are: A test on a sale of a higher open or buy of a lower open with no other information to work with provides a winning trade fifty-six percent of the time when exiting on the close the same day of entry. This suggests a natural tendency for the market to reverse the opening direction by the time of the close.

This natural tendency is reversed after an ID. Why? What is it about an ID that produces follow through after the open? An ID is narrower than the previous day. Any narrowing day shows loss of momentum and when within a previous day's range it forms a congestion area. A congestion is directionless trade with the market searching for new information. A temporary state of balance or equilibrium exists.

There is a tendency for the market to trend after a congestion. If an Inside Day is a valid congestion, it will produce an imminent trend day. One can assume from the above tests that there is a tendency to trend after these patterns (ID). These tests support the premise that Inside Days are valid congestion areas. 

It appears that market participants act on the first piece of information indicating trend after the Inside Day - the open. Also, the direction of the close on the ID will provide further clues on the direction of the breakout when added to the information of opening direction. The increase in percentage profit and relative profits when these variables are added supports this conclusion.

The ID pattern acts as a continuation 62% of the time. A breakout occurs when price closes either above the top of the pattern or below the bottom of it. Since inside days act as a continuation pattern, expect the breakout to be in the same direction as the inbound price trend. Wait for price to either close above the top or below the bottom of the pattern before taking a position. The ID can form midway in a price trend, just like bull flags, wedges and pennants.

Why do these indications work so well in the S+P? The S+P generally is an urgent market. The distinguishing characteristic of this market is its tendency to trend throughout the session. This market is notorious for big, fast moves intra-day. Peter Steidlmayer (Markets and Market Logic) calls it a One-Time Frame market. 

One may reason that in a One-Time Frame market the inside day is a more reliable indication of upcoming trend than in a Two-Time Frame market. The market principle that is in force is contraction/expansion. The Inside Day is contraction, and in a One-Time Frame market 1-Day contraction is all that is necessary to tip off a directional move.

In summary, the above tests suggest that an Inside Day is a valid congestion area and it follows that all breakout rules for congestion areas should be implemented after an Inside Day forms. The resulting breakout is expansion.

Three-Bar Inside Bar Pattern by Johnan Prathap - HERE & HERE

[...] The Principle of Contraction / Expansion is defined as the market phenomenon of change from a period of rest to a period of movement back to a period of rest. This interaction between the phases of motion and rest are constantly taking place, with one phase directly responsible for the others' existence. 

A Trend Day is defined as a day when the first hour's trade comprises less than 10% of the day's range or the market has no dominant area of trade throughout the session. Trend days are characterized by an opening near one extreme and a close on the opposite extreme of the daily range. Trend days fall into the category of expansions.  

Congestion is a series of trading days with no visible progress in either direction. Usually associated with narrow range days or non-trend days. Contraction is a market behavior represented by a congestion or dormant period either short-term (ID) or long-term narrow range (8 Bar NR) and usually reaching its narrowest phase at the end of the period.

Reference:

Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout.