Previous day sweep: fading a false break of yesterday's low

Yesterday's high and low are two of the most watched prices on any chart. Many traders put stop orders just past them. This setup looks for a candle that dips below yesterday's low, triggers those stops, and then closes back inside yesterday's range. It buys that rejection and aims for the middle of yesterday's range. Traders use it because the level is objective and the point of failure is obvious.

Why yesterday's low matters

The previous day is measured in UTC, the same clock for everyone. Its high and low are simple, shared reference points. Buyers from yesterday often keep their stop orders just under its low. Breakout sellers wait for a break of it to go short. So when price reaches that low, a lot of orders get triggered at once.

In “smart money concepts”, a popular chart-reading framework, this cluster of resting orders is called liquidity, and a quick move through it that reverses is called a sweep. The framework often says large traders push price through these levels on purpose to fill their orders. That is one possible story, not something a chart can confirm. The practical point is narrower: if price breaks below the low and cannot stay there, the sellers who acted on the break are now trapped, and their exits can help push price back up.

The shape of the candle tells you how firmly the dip was rejected. A candle's range is the distance from its high to its low. Its lower wick is the part between the low and the lower of the open and close. A long lower wick means price went down, met buyers, and was pushed back up before the candle closed.

Stop buffers use ATR (average true range), the typical size of a candle over recent candles, so the buffer scales with the coin's volatility.

The rules, precisely

Here is one precise, testable version of this strategy. Traders vary these numbers, so treat them as a starting point. The rules are written for a long. The short is the mirror image: a wick above yesterday's high that closes back inside, aiming for the same midpoint.

1. Sweep: this candle's low went below the previous day's low (UTC day).
2. Reclaim: it closed back above that low, inside the previous day's range.
3. Rejection: its lower wick is at least 40% of the candle's range.
4. Entry: at the close of this candle.
5. Stop: below the candle's low, minus 0.2 ATR.
6. Target 1: the middle of the previous day's range, halfway between its high and low.

What to check

1. What is the bigger trend? These rules have no trend filter, so you have to look. The next timeframe up is trending down when its close is below its 20 EMA and the 20 EMA is below the 50 EMA. The EMA (exponential moving average) is an average of recent closes that weights the newest more. In that case, a dip below yesterday's low is often the trend continuing, not a trap.
2. How far below did it go? A sweep a little under the low, then back, is the classic shape. A candle that fell several ATR below the low before recovering is a much more volatile event, and it puts the stop a long way off. If the stop ends up more than 4 ATR from the entry, the setup is skipped.
3. Is the midpoint far enough? Measure from entry to the middle of yesterday's range. If that is less than 1.5 times the distance to your stop, the trade does not qualify. This is common when yesterday was a quiet, narrow day.
4. What time is it? Sweeps of yesterday's low often happen around busy sessions, such as the London or New York opens, when volume jumps. A sweep in thin overnight trading can be a few small orders, not a real rejection.
5. Was there news? Check for a headline, a large liquidation or an exchange problem behind the drop. When the reason for the move is still developing, old daily levels lose their meaning.
6. Does the timeframe work with the fees? On 15-minute candles, the candle's low can sit very close to the close. If fees of 0.1% each way cost more than 0.3 R, the setup is skipped because the exchange would take most of the gain.

Stops, targets and the time limit work the same way for every setup in this series. See managing a setup: stops, targets and the time limit.