Forex Day Trading: The 5 Prices You Need to Know
Successful day trading in the forex market requires more than just technical analysis and a good strategy—it involves having a clear roadmap for the trading day ahead.
One of the best ways to build that roadmap is by focusing on five key prices that can serve as critical reference points for your trades. Understanding how price interacts with these levels provides context for market sentiment, potential support and resistance, and helps guide your trading decisions.
Let’s dive into the five prices you should always keep in mind when day trading forex.
1. Previous Day High
The previous day’s high marks the top of the price range from the last trading session. This is a key resistance level for the day ahead. If the market is trending upward, the previous day’s high can act as a breakout point, offering a potential entry for long positions. Conversely, if price approaches this level but fails to break through, it may signal a reversal, providing a shorting opportunity.
Whether price breaks above or gets rejected at the previous day’s high, monitoring this level gives you insight into market sentiment and potential trade setups.
2. Previous Day Low
Just as the previous day’s high represents resistance, the previous day’s low is a crucial support level. If the market is in a downtrend, breaking below this level could confirm continued bearish momentum. Traders can use the previous day’s low as a cue for entering short trades or for setting stop-losses when going long.
If price fails to break below this level, it may also signal that sellers are losing steam, providing an opportunity for a reversal trade.
3. Asian Session High
The Asian session typically trades within a narrower range than the European or North American sessions, but it still provides valuable clues about market sentiment before the heavier volume kicks in. The Asian session high can act as a short-term resistance level during the start of the European or New York session. If the price breaks above the Asian session high during the day, it could indicate that the market is ready to move higher with added momentum.
On days with no major news, price often fluctuates between the Asian session high and low until a breakout occurs. Knowing where these levels sit can help frame your intraday expectations.
4. Asian Session Low
The Asian session low mirrors the high by marking short-term support. During the more volatile European and American sessions, this level often acts as a first line of defence for bulls. If price breaks below this level, the market might be indicating a strong bearish sentiment for the day ahead, setting the stage for short positions.
Keeping an eye on the Asian session low also helps traders identify false breakouts, as it’s not uncommon for the market to test this level before reversing direction.
5. Previous Day’s Point of Control (POC)
The Point of Control (POC) is a concept borrowed from volume profile analysis. It represents the price level where the most volume traded during the previous session—essentially where the most activity occurred. The POC can serve as a critical level for intraday traders because it often acts as a magnet for price.
When price is trading near the POC, it signals balance and can often lead to periods of consolidation. If the market breaks away from the POC, it could indicate the start of a new trend. This level also serves as a potential area to take profits or set stop-loss orders because of its importance in the previous session's price action.
Example:
Here’s an example that shows EUR/USD at the start of European trading with the five price levels added.
EUR/USD 5min Chart: Start of European Trading
Past performance is not a reliable indicator of future results
If we fast forward to the end of the days trading, we can see that on this day, a break above the Asian session high was enough to trigger a retest of the previous days high which was swiftly rejected. The market ended the session back at the previous days low.
Example: EUR/USD 5min Chart: End of Day
Past performance is not a reliable indicator of future results
Building Your Trade Plan Around These Prices
Each of these five price levels creates a roadmap for the trading day, offering you reference points to base your trade decisions. Whether price is trending or ranging, these levels allow you to anticipate market behaviour and spot potential entry and exit points with greater confidence.
Ultimately, using these levels provides you with structure, helping to avoid impulsive trades and giving you a logical framework to interpret market movements.
Example 1: Starting the Session Within Prior Days Range
In this example, EUR/USD is starting the European session within the prior day/s range – making the previous day’s high and low key areas of resistance and support. The market has also traded within a narrow range during the Asian session and the Asian session high coincides with the prior days Point of Control – adding to its significance.
EUR/USD 5min Candle Chart
Past performance is not a reliable indicator of future results
Example 2: Starting the Session Outside of Prior Days Range
Here we start European trading above the prior day’s range. The Asian session high is our trend resistance area and we have multiple levels of support on our chart – the prior day’s high, prior day’s PoC, and prior day’s lows.
EUR/USD 5min Candle Chart
Past performance is not a reliable indicator of future results
Other factors to consider
In addition to these five prices, it's essential to consider other market factors to enhance your trading strategy. Assess the daily trend structure to understand the broader market direction. Identify daily support and resistance levels that may coincide with your key prices, as these can significantly influence price behaviour. Lastly, keep an eye on daily price patterns, such as flags, triangles, or head and shoulders, as they can provide additional context for potential market movements.
By integrating these elements into your day trading plan, you can create a clear trade plan regardless of market conditions.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
One of the best ways to build that roadmap is by focusing on five key prices that can serve as critical reference points for your trades. Understanding how price interacts with these levels provides context for market sentiment, potential support and resistance, and helps guide your trading decisions.
Let’s dive into the five prices you should always keep in mind when day trading forex.
1. Previous Day High
The previous day’s high marks the top of the price range from the last trading session. This is a key resistance level for the day ahead. If the market is trending upward, the previous day’s high can act as a breakout point, offering a potential entry for long positions. Conversely, if price approaches this level but fails to break through, it may signal a reversal, providing a shorting opportunity.
Whether price breaks above or gets rejected at the previous day’s high, monitoring this level gives you insight into market sentiment and potential trade setups.
2. Previous Day Low
Just as the previous day’s high represents resistance, the previous day’s low is a crucial support level. If the market is in a downtrend, breaking below this level could confirm continued bearish momentum. Traders can use the previous day’s low as a cue for entering short trades or for setting stop-losses when going long.
If price fails to break below this level, it may also signal that sellers are losing steam, providing an opportunity for a reversal trade.
3. Asian Session High
The Asian session typically trades within a narrower range than the European or North American sessions, but it still provides valuable clues about market sentiment before the heavier volume kicks in. The Asian session high can act as a short-term resistance level during the start of the European or New York session. If the price breaks above the Asian session high during the day, it could indicate that the market is ready to move higher with added momentum.
On days with no major news, price often fluctuates between the Asian session high and low until a breakout occurs. Knowing where these levels sit can help frame your intraday expectations.
4. Asian Session Low
The Asian session low mirrors the high by marking short-term support. During the more volatile European and American sessions, this level often acts as a first line of defence for bulls. If price breaks below this level, the market might be indicating a strong bearish sentiment for the day ahead, setting the stage for short positions.
Keeping an eye on the Asian session low also helps traders identify false breakouts, as it’s not uncommon for the market to test this level before reversing direction.
5. Previous Day’s Point of Control (POC)
The Point of Control (POC) is a concept borrowed from volume profile analysis. It represents the price level where the most volume traded during the previous session—essentially where the most activity occurred. The POC can serve as a critical level for intraday traders because it often acts as a magnet for price.
When price is trading near the POC, it signals balance and can often lead to periods of consolidation. If the market breaks away from the POC, it could indicate the start of a new trend. This level also serves as a potential area to take profits or set stop-loss orders because of its importance in the previous session's price action.
Example:
Here’s an example that shows EUR/USD at the start of European trading with the five price levels added.
EUR/USD 5min Chart: Start of European Trading
Past performance is not a reliable indicator of future results
If we fast forward to the end of the days trading, we can see that on this day, a break above the Asian session high was enough to trigger a retest of the previous days high which was swiftly rejected. The market ended the session back at the previous days low.
Example: EUR/USD 5min Chart: End of Day
Past performance is not a reliable indicator of future results
Building Your Trade Plan Around These Prices
Each of these five price levels creates a roadmap for the trading day, offering you reference points to base your trade decisions. Whether price is trending or ranging, these levels allow you to anticipate market behaviour and spot potential entry and exit points with greater confidence.
Ultimately, using these levels provides you with structure, helping to avoid impulsive trades and giving you a logical framework to interpret market movements.
Example 1: Starting the Session Within Prior Days Range
In this example, EUR/USD is starting the European session within the prior day/s range – making the previous day’s high and low key areas of resistance and support. The market has also traded within a narrow range during the Asian session and the Asian session high coincides with the prior days Point of Control – adding to its significance.
EUR/USD 5min Candle Chart
Past performance is not a reliable indicator of future results
Example 2: Starting the Session Outside of Prior Days Range
Here we start European trading above the prior day’s range. The Asian session high is our trend resistance area and we have multiple levels of support on our chart – the prior day’s high, prior day’s PoC, and prior day’s lows.
EUR/USD 5min Candle Chart
Past performance is not a reliable indicator of future results
Other factors to consider
In addition to these five prices, it's essential to consider other market factors to enhance your trading strategy. Assess the daily trend structure to understand the broader market direction. Identify daily support and resistance levels that may coincide with your key prices, as these can significantly influence price behaviour. Lastly, keep an eye on daily price patterns, such as flags, triangles, or head and shoulders, as they can provide additional context for potential market movements.
By integrating these elements into your day trading plan, you can create a clear trade plan regardless of market conditions.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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