Before a single candle prints today, two prices already exist that most of the day's intraday traders will react to without even discussing it: yesterday's high and yesterday's low. No indicator, no news release, no opinion, just the highest and lowest price the market agreed to trade at over the previous 24 hours. On EURUSD, gold and Nasdaq alike, these two numbers do more honest work framing an ordinary session than almost anything drawn with more effort.
Why yesterday's range still matters today
Yesterday's high and low mark the outer edge of everyone's most recent shared agreement about value. Traders who bought near yesterday's low are in profit if price holds above it and defensive if it breaks. Traders who sold near yesterday's high feel the same in reverse. That leftover positioning does not evaporate at midnight; it walks straight into today's session and shapes how price behaves the first time it revisits either extreme. A Nasdaq session that opens inside yesterday's range, say between yesterday's low of 19,180 and high of 19,340, is starting inside a zone the market has already agreed on, and the first real test is usually whichever extreme gets touched first.
Three ways price treats yesterday's extremes
A break happens when price pushes through yesterday's high or low and keeps going, ideally with a strong close beyond it and follow-through on the next candle or two, which suggests fresh buyers or sellers have taken control and yesterday's range no longer contains the story. A fade happens when price pokes through the extreme, fails to hold, and snaps back inside the range, which often produces one of the more reliable reversal trades of the day precisely because the failed break traps the traders who just committed to the breakout. A retest happens after a clean break, when price returns to the old extreme from the outside, treating it the way the earlier discussion of role reversal describes: a former high acting as support, a former low acting as resistance.
Tactics for each scenario
- Trading the break: wait for a full candle close beyond yesterday's high or low, on your working timeframe, before entering, rather than the first touch.
- Trading the fade: look for a sharp rejection candle at the extreme, ideally with a wick that pierces beyond it and a close back inside, with a stop just past the wick.
- Trading the retest: after a confirmed break, wait for price to return to the old extreme and show a rejection there before entering in the direction of the break.
Putting the compass to work on a $10,000 account
Say gold's prior session ran from a low of 2,388 to a high of 2,414. Today's price opens at 2,401, drifts up, and tags 2,414 by mid-morning. A trader watching for the fade sees a sharp rejection candle form right at 2,414 with a $3 upper wick, sets a stop at 2,417, a $3 risk, and targets back toward 2,401. Risking 1 percent of a $10,000 account, $100, against a $3 stop with gold worth $100 per dollar per standard lot works out to roughly 0.33 lots. If instead price closed above 2,414 with real follow-through, the break scenario takes over and the fade idea is simply off the table. The two scenarios are mutually exclusive at any given moment, which is exactly why yesterday's range is useful: it forces a clear read of which story is actually playing out.