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

In our previous article, we explored how to trade when the price bounces off the Previous Day Low (PDL). Today, we’ll dive into trading a breakout below the PDL zone.

1. Wait for a Candle to Close Below the PDL Area

• Once a candle closes below the PDL, you might feel the urge to jump in short, expecting a continuation lower. However, probabilistically speaking, that’s risky. Sure, the price might occasionally drop sharply or even flush, but more often, it pulls back for a retest.

Mar 10, 2025

2. Wait for the Retest

• When the price retests the PDL area — touching it again after breaking below — don’t rush to trade. A day like today shows that retests can fail, with the price climbing back above the PDL despite the earlier breakout.

Mar 11, 2025

• Instead, wait for a strong signal: a large red candle forming below the PDL, confirming bearish momentum.

3. Enter the Trade

• Now you’ve got it: the price bounced off the PDL during the retest, it’s trading below all the EMAs (20, 50, 200), and the bearish trend looks solid.

• Enter short with a stop loss placed just above the PDL. For your target, look for a past significant level. If none exists, lean on technical analysis basics. Today, for example, we had a textbook bear flag — where the pole length before consolidation often equals the move after the breakout. That’s your first target.

And that’s it! Keep your trading simple. Build your strategy with clear playbooks like this one. Test them thoroughly — backtest extensively, then paper trade using a replay feature. If your profit factor exceeds 1, you’ve got a winning edge!

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