Trading Strategy 101 – Lesson 7: Previous Day High and Low Strategy for Beginners

Introduction

A stock crosses yesterday’s high. The candle turns green, the price starts moving quickly, and you feel that waiting even a few seconds might mean missing the trade.

Then it slips back below the same level.

Was the breakout wrong? Or was there not enough evidence to call it a breakout in the first place?

The previous day high and low strategy gives intraday traders two clear reference points before the session begins. Traders watch how price behaves around those levels to assess possible continuation or rejection.

This lesson focuses on a breakout-and-retest approach. It may suit traders who prefer preparing levels in advance and waiting for price to reach them.

The lines are easy to draw. The real work is deciding whether the move has follow-through, whether there is room for a target, and how much money is at risk if the idea fails.

What Is the Previous Day High and Low Strategy?

The previous day high, often called PDH, is the highest traded price in the previous trading session. The previous day low, or PDL, is the lowest.

Together, they define that session’s price range.

Here, “previous day” means the previous trading session, not necessarily yesterday’s calendar date. After a weekend or exchange holiday, use the most recent completed session.

Traders treat these levels as possible areas of resistance and support. Neither level is guaranteed to hold. The broader use of price levels to assess entries and targets is explained in Zerodha Varsity’s support and resistance guide.

If price moves above PDH and remains there, traders may investigate a bullish continuation. If it moves below PDL and stays there, they may investigate a bearish continuation.

Price can also briefly cross a level and return inside the range. That is a different outcome, and it can trap someone who entered on the first touch.

There are breakout, rejection and reversal variations of this strategy. The rules below describe only one educational breakout-and-retest version. They have not been presented as a tested profitable system.

Quick Strategy Snapshot

How the Strategy Works

First, mark levels that are already known

PDH and PDL are available before the new session starts. They stay fixed throughout the day.

That makes preparation straightforward. You do not need to keep adjusting the lines as today’s high and low change.

However, a fixed line is only a reference. It does not reveal how many orders are waiting there or why other traders may act.

Next, watch how price approaches the boundary

Suppose a stock opens inside the previous range and gradually approaches PDH.

A steady rise with manageable pullbacks gives a different context from one enormous candle after a news announcement. Both can cross the line, but their stop distances and execution risks may differ considerably.

Before considering an entry, look beyond the boundary. An older resistance level just above PDH may leave very little room.

Then, distinguish a break from a hold

A wick above PDH means price traded above it briefly. A candle close above PDH offers more information, but it can still fail.

A retest adds another observation: price returns to the broken level, then closes on the breakout side again.

For a long setup, traders are examining whether former resistance may now act as support. For a short setup, they are examining whether former support may act as resistance.

Waiting for a retest can mean missing a move that never comes back. That is a trade-off built into this version.

Chart Setup

No moving average, RSI or VWAP is required.

Before looking for a trade:

1. Open the chart of a liquid NSE-listed stock.
2. Identify the previous completed session’s highest and lowest prices, including candle wicks.
3. Draw horizontal lines labelled PDH and PDL.
4. Mark nearby older support and resistance using the daily and 15-minute charts.
5. Use a 5-minute chart for the entry rules.

For consistency, this lesson defines the reference range using the normal NSE equity trading session, ordinarily 9:15 a.m. to 3:30 p.m. IST. Special sessions may have different schedules.

official NSE market timings

Check your chart provider’s session settings. A daily candle or automatic indicator may use a different data convention. If it does, derive the levels from intraday bars using your chosen session definition and keep that method consistent.

Do not mix an NSE stock’s levels with its BSE chart. Similarly, spot-index levels and futures-contract levels are not interchangeable.

A split, bonus issue or other corporate action can also affect price comparability. If historical adjustments are unclear, skip that instrument until the levels are verified.

Entry Conditions

For this sample framework:

• The stock must open strictly inside the previous session’s range.
• Use the first 5-minute close outside either boundary as the breakout candidate.
• If that candidate fails, do not look for another trade in that stock that day.
• Enter only from 9:30 a.m. to before 2:00 p.m. IST.
• Take no more than one filled trade per stock per day.

These are deliberately restrictive study rules, not exchange requirements or claimed optimal settings.

Bullish or long setup

1. A completed 5-minute candle closes above PDH. A wick alone does not qualify.
2. Within the next three completed candles, price retests PDH. A retest candle’s low must be at or below PDH and its high at or above it.
3. The first retest candle must close above PDH and above its own open.
4. Before that confirmation, no candle after the breakout may close back at or below PDH.
5. Consider entry only if the next candle trades above the retest candle’s high.
6. The intended entry and structural stop must leave at least 2R before the nearest marked resistance.

Here, R is the planned price risk per share.

Cancel an unfilled setup if the next candle does not trigger, if the planned stop is breached first, or if a candle closes back at or below PDH before entry.

If price jumps beyond the planned trigger, reassess the available reward using the actual executable price. Do not assume a fill at the old trigger.

Bearish or short setup

Reverse the conditions:

1. A completed 5-minute candle closes below PDL.
2. Within the next three candles, price retests PDL from below.
3. The first retest candle touches or crosses the level but closes below it and below its own open.
4. No intervening candle closes back at or above PDL.
5. Consider entry below the retest candle’s low during the next candle.
6. Require at least 2R before the nearest marked support.

Apply the same cancellation rules in reverse.

An ordinary cash-market intraday short position must be covered within the same trading day. Check stock eligibility and your broker’s square-off requirements

Zerodha Varsity’s explanation of short selling

What about a gap above PDH or below PDL?

This version skips stocks that open outside the previous range.

An opening above PDH is not the same sequence as an intraday break from inside the range. A gap may continue, fade or reverse sharply.

Gap-and-retest setups can be studied separately. Do not quietly include them in a backtest designed for inside-range openings.

Confirmation Before Entry

The useful confirmations here are price behaviour, location and available room.

A completed candle close prevents you from treating a temporary move as a finished signal.

A retest close on the breakout side shows that the level survived one return. It does not establish that it will survive the next one.

Nearby support and resistance help assess whether the planned target is realistic relative to visible obstacles. Yesterday’s high may be only a short distance below a larger resistance area.

The 15-minute chart can provide context about whether the move follows an existing direction or runs into a broader range. It is a context tool in this framework, not an additional mechanical entry filter.

Stock volume may also be useful to record. If you turn it into a compulsory filter, define the comparison first—for example, against comparable time-of-day bars—and test it separately. “Volume looked strong” is difficult to reproduce consistently.

Stop-Loss Placement

For a long trade, place the planned stop below the lowest price reached from the candle after the breakout through the confirmed retest, with a predefined buffer.

For a short trade, use the highest price reached over that same interval, plus a buffer.

This anchors the stop to the structure being traded. The assumption is that the retested boundary will hold well enough for continuation. A move beyond the retest structure weakens that assumption.

Choose a buffer rule suited to the instrument’s tick size, spread and normal movement. Record it before testing or trading; there is no single rupee buffer suitable for every stock.

Do not automatically use PDL as the stop for a PDH breakout. The entire previous range may be far wider than the setup requires.

If the logical stop is unaffordable, reduce quantity or skip. A stop order is also not a guarantee of the execution price.

Target and Exit Strategy

Define the risk before entry.

A simple exit plan for the first test is:

• Keep the original structural stop.
• Set a fixed target at 2R.
• Close any remaining position by 3:00 p.m. IST, or earlier if the broker requires it.
• Do not widen the stop after entering.

These are sample study parameters. A time exit can produce a smaller gain, a smaller loss or a loss affected by slippage.

Other approaches include exiting near an older price level, trailing behind newly confirmed swings, or taking partial profits. Test them as separate variants instead of changing the plan halfway through a trade.

The width of yesterday’s range is not a guaranteed projection of today’s move. There is no rule that a PDH breakout must rise by the full PDH-to-PDL distance.

Risk-Reward Example

Hypothetical example for educational purposes:

• Entry: ₹500
• Stop-loss: ₹495
• Risk: ₹5 per share
• Target at 1:2 risk-reward: ₹510
• Potential reward: ₹10 per share

For 40 shares, the planned price loss is ₹200 and the target price gain is ₹400, before costs and slippage.

This describes the trade plan, not the probability of achieving it. A 2R target alone does not make a strategy profitable.

Practical Indian Market Example

Consider a hypothetical SBI chart. All prices below are invented for explanation and are not current quotations or a trading recommendation.

Setup

The previous session’s high is ₹810 and its low is ₹798.

Today, SBI opens at ₹804, inside that range. Before the session, an older resistance level has been marked at ₹830.

The first 5-minute candle to close outside the previous range finishes at ₹812, above PDH.

Confirmation

Within the next three candles, price returns to ₹810.

The first retest candle opens at ₹811, trades between ₹809 and ₹813, and closes at ₹812.50. It touches PDH, closes above it and finishes above its own open.

No intervening candle has closed back at or below ₹810. Assume the lowest price between the breakout and confirmed retest is ₹809.

Entry

During the next candle, price trades above the retest high of ₹813. Assume an actual entry at ₹814, within the entry window.

The risk calculation uses ₹814, even if a lower fill had been hoped for.

Stop-loss

For this illustration, assume the predefined buffer is ₹1.

The stop is therefore ₹808, below the ₹809 retest structure.

Risk per share = ₹814 − ₹808 = ₹6.

Target or exit

The 2R target is ₹826.

With marked resistance at ₹830, the setup has enough room under the sample rule. If resistance were at ₹820 instead, the available reward would be only ₹6 against ₹6 of risk, so the trade would be skipped.

After entry, the stop, target or time exit determines the result. Price may still return inside the previous range and trigger a loss.

When This Strategy Works Best

The conditions most consistent with this breakout version include:

• An inside-range opening followed by a clear directional move.
• Consolidation near a boundary before expansion.
• A brief, orderly retest rather than repeated crossings.
• Reasonable liquidity and manageable spreads.
• Enough room before an opposing level.

The key is follow-through beyond the boundary. A busy chart is not necessarily a directional chart.

These conditions explain what the framework is designed to study. Whether it has an advantage after costs must be established through testing.

When to Avoid This Strategy

Skip the setup when:

• Price repeatedly crosses the same boundary. There may be no sustained direction.
• The stock opens outside yesterday’s range. That falls outside this version.
• The breakout candle is unusually large. Entry may be too far from a sensible stop.
• No qualifying retest appears. Chasing changes the method.
• Resistance or support is too close. The planned reward is insufficient.
• Spreads are wide or trading is thin. Actual execution may differ substantially from the chart.
• A major announcement is imminent. Company results or policy news can overwhelm the setup.
• The prior session was unusual or the data are unclear. Special-session hours or corporate actions may make the reference range unsuitable without further checking.

There is no requirement to trade PDH or PDL every day.

False Signals and Strategy Limitations

A visible level can attract activity without producing a lasting move.

Price may break above PDH, pass the retest conditions, trigger an entry and then reverse. The extra confirmation changes the entry process; it does not remove uncertainty.

There is also an execution problem. A quick price jump can leave a trader with a worse entry or stop fill than planned.

The fixed rules will miss some successful moves, especially those with no retest or with gap openings. That is part of choosing a narrow framework that can be evaluated consistently.

One losing trade does not prove the strategy is useless. A few winners do not prove an edge either. Review many trades, their costs and their drawdowns across different market conditions.

trading ranges and breakouts explained by Zerodha Varsity

Common Mistakes Beginners Make

• Using today’s developing high or low instead of the previous session’s fixed levels.
• Marking candle bodies and ignoring wicks.
• Entering on the first tick beyond the line.
• Calling every move back towards PDH or PDL a valid retest.
• Chasing after the next-candle trigger has expired.
• Retrying the same stock repeatedly after the setup fails.
• Keeping the same quantity when stop distance increases.
• Assuming a stop will always execute at its trigger price.
• Applying spot-index levels directly to an option premium chart.

A Nifty 50 or Bank Nifty chart can provide context, but the spot index itself is not directly tradable. Futures, options and ETFs have their own pricing and risk characteristics.

Position Sizing and Risk Management

Decide the maximum acceptable loss before placing an order.

A starting formula is:

Quantity = rupee price-risk budget ÷ risk per share

Suppose a hypothetical ₹50,000 account has a ₹250 total trade-risk budget. This 0.5% figure illustrates the calculation; it is not a recommended risk level.

Reserve ₹40 for estimated costs and slippage, leaving ₹210 for price risk.

Using the SBI example:

₹210 ÷ ₹6 = 35 shares

At ₹814, a fully funded purchase of 35 shares costs ₹28,490.

If the required purchase value exceeds available funds, reduce quantity further. Do not borrow more simply to reach the calculated size.

The cost allowance is an estimate, so the actual loss may exceed ₹250. Set a daily loss limit as well, and consider combined exposure when several stocks from the same sector trigger together.

Backtesting the Strategy

Begin with one liquid instrument and a fixed chart timeframe.

Write down the exact rules before reviewing outcomes:

• Which session defines PDH and PDL?
• What opening conditions qualify?
• Which breakout candidate is used?
• How must the retest behave?
• What cancels the entry?
• How are the buffer, target and time exit determined?

Review a meaningful sample across trending and sideways conditions. Around 100 qualifying setups can be a starting exercise, but no fixed count proves reliability.

Record wins, losses, time exits, average winning R, average losing R and average net R after costs. Track drawdowns—the declines from a running account peak—and the longest losing streak.

Include realistic spreads, charges and slippage. If one candle reaches both stop and target and you do not know the sequence, use finer data or a conservative assumption.

Calculate each day’s levels only from its preceding completed session. Keep corporate-action adjustments and session settings consistent.

Finally, test the unchanged rules on data you did not use to develop them. Follow that with paper trading or simulation before considering real money.

Simple Trading Checklist

• Are PDH and PDL taken from the correct completed session?
• Are the exchange, instrument and session settings consistent?
• Did today’s price open strictly inside the range?
• Has the first qualifying breakout candle closed outside it?
• Did the first retest meet the rules within three candles?
• Has price avoided an invalidating close before entry?
• Is the next-candle trigger still valid?
• Is the stop based on the retest structure?
• Is at least 2R available before the next opposing level?
• Do the quantity, entry time and exit plan fit the rules?

If an essential condition is missing, it is not this setup.

Advantages and Limitations

Who Is This Strategy Suitable For?

Beginners can use it for chart practice because the reference levels are easy to identify. That does not make live execution easy.

Intraday traders who can monitor candle closes and manage positions may find the routine useful.

Swing traders can use previous-session levels as context, but holding overnight requires different rules and exposes positions to gaps. Positional investors should not use this intraday framework as a substitute for longer-term research.

Experienced traders may study separate gap, rejection or reversal variations. Those variations need their own records rather than being mixed into one result.

Key Takeaway

The previous day high and low strategy starts with two simple lines. A complete trading decision needs more: a qualifying breakout, a valid retest, enough room for the target and a loss budget decided in advance.

Treat the boundaries as places to observe price behaviour. Neither line promises continuation or reversal.

The useful habit is consistency—mark the same session, follow the same rules, record the failures and accept that some days offer no trade.

5 Frequently Asked Questions

Q1. Which day’s levels should I use after a holiday?

Use the most recent completed trading session. If that was a special or shortened session, check whether your tested rules cover it.

Q2. Is this the same as an opening range breakout?

No. This method uses the previous session’s high and low. An opening range breakout uses a defined opening period from the current session.

Q3. Is a candle wick beyond PDH or PDL enough?

Not in this framework. It requires a completed close outside the range, followed by a qualifying retest and entry trigger.

Q4. What if price breaks both levels in one day?

That can indicate a wide, unstable session. This version allows only the first breakout candidate and no second attempt in the same stock.

Q5. Can yesterday’s range determine today’s target?

It can be studied as a separate target method, but there is no guarantee that price will travel that distance. This lesson uses structural risk and a fixed 2R target.

Further Reading

Trading Strategy 101 – Lesson 6: Moving Average Pullback Strategy

Trading Strategy 101 – Lesson 5: RSI + Price Action Trading Strategy

Trading Strategy 101 – Lesson 4: Opening Range Breakout (ORB) Strategy

Trading Strategy 101 – Lesson 3: VWAP Intraday Trading Strategy

Strategy #2 – 20 EMA and 50 EMA Trend Trading Strategy for Beginners

Stock Market 101 – Lesson 36: SIP Strategy Upgrade

Article Information

Author: Kartalks Education Desk

Reviewed by: Kartalks Editorial Team

Content Type: Stock market education, previous day high and low trading strategy, intraday breakout trading, support and resistance levels, price action analysis, entry and exit planning, stop-loss placement, risk management, false breakout awareness, and beginner trader education

Sources: SEBI investor education material, NSE/BSE educational resources, historical market price data, technical analysis references, stock exchange learning resources, and official public sources

Last Updated: October 24, 2026

Educational Disclaimer

This article is for educational and informational purposes only and should not be considered investment or trading advice. Stock-market trading involves risk, and actual losses can exceed planned losses. Past performance and hypothetical examples do not guarantee future results. Conduct your own research and consider consulting a SEBI-registered investment adviser before making financial decisions.