forex-scalping.com

Previous Day High and Low, The Daily Magnets

If you only mark two levels on your chart each morning, make them the previous day's high and low. Almost every active trader sees them, which makes them powerful liquidity pools. Why they matter: stop losses, pending orders, and breakout entries cluster just beyond these levels. Price is often drawn to them, sweeps them, and then makes its decision.

Common scenarios:

Sweep and reverse. Price pokes above the previous day's high, takes the liquidity, then closes back below. This can signal a bearish move.

Break and hold. Price closes beyond the level and retests it successfully, suggesting continuation.

Target role. In a clear trend, the previous day's high or low is often the first logical target.

How to use them:

1. Mark the previous day's high (PDH) and low (PDL) before the session starts.
2. Determine your higher-timeframe bias.
3. If bullish, watch for a sweep of the PDL followed by a shift upward, or a clean break above the PDH with a retest.
4. If bearish, watch the mirror image.
5. Always wait for confirmation after the touch.

Risk note: levels get swept more often than traders expect. Placing stops at the exact level is asking for trouble. Give your stop a buffer beyond the sweep.

Track how price behaves around PDH and PDL for ten days. You may be surprised by how consistent the reactions are.

Two practical notes from marking these every morning for years.

Mondays are the odd day. "Previous day" means Friday, and Friday afternoon is often a thin, drifting session, so its high and low are weaker magnets than a normal midweek PDH. On Mondays I give more weight to the prior week's levels and treat Friday's as secondary.

When the previous day's high and the Asian high sit within a few pips of each other, I treat them as one pool, not two levels. The sweep usually goes through both in one move, and someone who placed the stop "beyond the PDH" but inside the Asian high gets clipped anyway. For the buffer you mention, I size it from the M5 ATR at the time rather than a fixed number of pips, because five pips beyond the level is plenty at 3 a.m. and nothing at the London open.

For the ten-day test, split the tally into sweep-and-reverse, break-and-hold and simply no touch. Lumping them together makes the levels look more reliable than they are.

A nuance on "previous day": it depends on the broker's server time. Brokers on GMT+2/+3 (New York close) have five daily candles a week, so Monday's previous day is Friday. Brokers on GMT have a small Sunday candle, and on Monday the "previous day high/low" is from that thin Sunday session.

That can make the level misleading for Monday trading. Checking which convention your broker uses, and using Friday's levels on Monday if needed, keeps the levels meaningful.

I ran the ten day test with PropScalpDesk's three way split on EURUSD, counting the high and the low separately, so 20 level days in total. Sweep and reverse came up 7 times, break and hold 4 times, and 9 times the level was never touched at all.
The chart puts PDH and PDL side by side, and the no touch bars are the ones to look at. Nearly half the time the magnet did nothing, which a lumped tally would have hidden.

The sweep and reverse cases were not equal either. Five of the 7 came in the first two hours of London, and the two later ones were weak reversals that gave back most of the move.

For the buffer I use half of the M5 ATR at the moment of the touch. That came to about 1.5 pips on an Asia touch and 4.5 on one at the London open, which fits what PropScalpDesk said about overnight touches.

On the server time note from FXS Prop Desk, I check it by counting candles. If the week shows six daily bars, the broker has the Sunday stub, and Monday's levels should come from Friday instead.