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How to Use the Previous Day High Low Breakout Strategy

The previous day high low breakout strategy refers to the day trading technique that provides traders with multiple opportunities to go either long or short. The main idea is to identify the trend in its most juicy state followed by a trending move. Just like any other day trading tactics, the previous day's high and low trading strategy requires processing a bunch of technical analysis data within a limited time frame. So, it can be quite complex for beginners though with high-profit potential.

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Today, we are going to discuss all strategy pros and cons as well as ways to utilize it under real-market conditions.

How the Previous Day High Low Breakout Strategy Works

The idea is quite simple. With this strategy, traders no longer need to track from 5 to 10-day ranges and keep the focus on the previous day’s recent range lows and highs instead. Every stock leaves a specific trait depending on the market operators trading the asset throughout the day. On the other hand, both bears and bulls tend to establish specific trading boundaries that limit a stock when moving in a specific direction.

The idea of the previous day breakout strategy is to keep an eye on those ranges and enter a market with either a long or short position while exploiting the range. To utilize the strategy, traders are supposed to meet the following requirements:

  1. Identify the price range of the previous day’s high and low.
  2. Use the 2-day historical data to compare the previous day range with the one set two days ago. It will let you prevent erratic ranges.
  3. If the current breakout exceeds the previous days’ range by at least 10%, you can enter the market with either buy or sell positions.
  4. If you want to avoid or stop the trade, you can use moving averages. One of the approaches may involve going short when the predefined price tag is reached.
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The Previous Day High and Low Strategy Pros and Cons

Like every trading strategy, the previous day's high and low technique has some advantages and disadvantages. The only thing you should always keep in mind is the fact that the strategy can be used mainly as part of a short-term concept.

Pros:

  • With so many traders using the strategy, a few players actually consider the market volatility while the majority simply ignore it. There is no sense in waiting for the range of $2 to move to a $10-price tag.
  • Entry levels are not as obvious as they may seem. Sometimes, they are hidden from traders. At the same time, the strategy offers less obvious highs and lows if compared to other strategies alike.

Cons:

  • The strategy is complex, as every cent matters when approaching the bottom line. Besides, you may need a signal confirmation to avoid fake or misleading signals.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.