Simplify your day trading: Leveraging previous day highs and lows (Part I)

Day traders, especially beginners, often overcomplicate their strategies. They bury their technical analysis under a pile of indicators and lose sight of the bigger picture.

Here’s a straightforward playbook that relies on just two key levels and one indicator (the EMA ribbon with 20, 50, and 200 EMAs). Let’s dive in:

1. Identify the Previous Day’s High Level (PDH)

• On the 15-minute timeframe, draw a horizontal line at the PDH and extend it to the right until the next candle’s body.

Mar 05, 2025

2. Identify the Previous Day’s Low Level (PDL)

3. Wait Patiently for the Price to Approach These Levels

• Switch to the 5-minute timeframe and observe the price action. In this example, expect some choppy movement.

• Things get interesting when the price finally touches the PDL. You can also draw a descending trendline here for added context.

4. Look for Confirmation Once the Price Bounces

• When the price bounces off the PDL, breaks out of the descending trendline, and moves above the 20 EMA, you’ve got your three confirmation signals.
• Enter a stop entry long one tick above the last candle’s close. Set your stop loss one tick below the previous candle’s low, and aim for a target at the bottom of the PDH area.

5. Stay Composed and Trail Your Stop Loss

• Trail your stop loss below the 20 EMA initially, then shift it below the 50 EMA once the 20 EMA crosses above it. This keeps you in the trade through minor pullbacks while locking in profits if the market flushes or reverses.

6. Celebrate a Successful Trade When Your Target Is Hit

• In this example, the trade captured nearly the full move with minimal risk, delivering over 3R (three times the risk).
• There are other ways to play it: you could sell half (or all) near the 200 EMA — a common reversal zone — and re-enter after a pullback when a bull flag bounces off the 20 EMA and breaks the descending trendline.

Important Note

Trading isn’t a science, and past results don’t guarantee future wins. It’s all about discipline and consistency. Never jump into a trade without solid confirmations — even then, success isn’t 100% guaranteed.

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