Key results
- Total return
- -65.6%
- Buy & hold: +2%
- Annual return (CAGR)
- -10.1%
- Buy & hold: +0.2%
- Max drawdown
- -66.1%
- Buy & hold: -27.6%
- Win rate
- 47.75%
- Profit factor
- 0.76
- Trades
- 2,042
- Longest losing streak
- 17 trades
- Period
- Oct 2, 2016 to Oct 1, 2026
- 10 years
- Market
- GBP/USD
- 1-hour
Equity curve vs buy & hold
Returns year by year
| Year | Return | Trades |
|---|---|---|
| 2016 | -3.2% | 54 |
| 2017 | -11.5% | 182 |
| 2018 | -7.4% | 210 |
| 2019 | -4.8% | 200 |
| 2020 | -4% | 228 |
| 2021 | -16.6% | 212 |
| 2022 | -18.4% | 228 |
| 2023 | -14.6% | 227 |
| 2024 | -9.1% | 180 |
| 2025 | -5.1% | 193 |
| 2026 | -5.2% | 128 |
Calendar years, compounded from monthly results. The first and last years can be partial.
The previous day high and low are among the most watched levels in intraday forex trading. The idea behind the breakout version, described for example in this guide to the strategy, is that orders cluster around yesterday's extremes, and a close beyond them releases that liquidity and starts a continuation move. We tested the simplest mechanical form on ten years of hourly GBP/USD, a pair known for its large intraday ranges.
The rules we tested
- Market and timeframe: GBP/USD, 1-hour candles.
- Period: 2 October 2016 to 1 October 2026.
- Long entry: an hourly close crosses above the previous day's high.
- Short entry: an hourly close crosses below the previous day's low.
- Stop-loss: 70 pips. Take-profit: 50 pips.
- Exit: the stop, the target, or an opposite entry signal, which closes the trade and reverses the position.
- Costs and sizing: 0.02% commission per side, full position size on a 10,000 starting balance.
What the backtest shows
This is a clear loss. The account fell 65.6% over ten years (-10.1% a year), with a maximum drawdown of 66.1%. Holding GBP/USD returned +2% over the same window, with a 27.6% drawdown.
The bracket explains most of it. Risking 70 pips to make 50 means a trade must win about 58% of the time just to break even before costs. The strategy won 47.75%. Of the 2,042 trades, 949 reached the target, 399 hit the stop and 693 were closed by an opposite signal, when price broke the other side of the previous day's range. The profit factor of 0.76 confirms that losses outweighed gains by about a third.
Frequency makes it worse. Around 200 trades a year at 0.04% per round trip add up to roughly 82% of the position size over ten years in commissions alone.
Not a single calendar year finished positive. The worst were 2022 (-18.4%), 2021 (-16.6%) and 2023 (-14.6%). The smallest losses came in the partial 2016 (-3.2%) and in 2020 (-4.0%), but none of the eleven years broke even.
Check the break-even win rate first
Before testing any bracket, work out the win rate it needs: stop divided by stop plus target. With 70 and 50, that is about 58%. If the setup cannot plausibly reach it, the rest of the rules hardly matter.
Why it doesn't work here
The logic of liquidity around yesterday's extremes is reasonable, but the market knows it too. On an hourly chart, a close above the previous day's high is very often the end of a push rather than the start of one: early buyers take profit, stops above the high get filled, and price drifts back into the range. That is visible in the 693 trades closed by a break of the opposite level. The wide stop then gives each failed breakout room to lose 70 pips, while the successful ones are capped at 50. The idea may still have value with different execution, but this version pays more on its losers than it collects on its winners.
What you could test next
- Flip the bracket to a 50-pip stop and a 100-pip target, so the strategy needs a much lower win rate.
- Restrict entries to the London or New York session, when breakouts have more volume behind them.
- Trade the opposite idea: fade the first close beyond yesterday's high or low and target a return into the range.
- Add a trend filter so only breakouts in the direction of the daily trend are taken.
Methodology and assumptions
- Starting capital
- 10,000
- Position size
- 100% of equity
- Commission
- 0.02% per side
- Data window
- Oct 2, 2016 to Oct 1, 2026
- Run date
- October 2, 2026
- No repainting: every signal is computed on closed candles only, so the backtest never acts on a price a trader could not have seen yet.
- Past performance does not predict future results. A backtest is a historical simulation, not a forecast.
Frequently asked questions
What is the previous day high low breakout strategy?
It treats yesterday's high and low as key levels. When an hourly candle closes above the previous day's high, you buy; when it closes below the previous day's low, you sell short. In this test the stop is 70 pips and the target 50 pips.
Why does the previous day high/low breakout lose on GBP/USD?
With a 70-pip stop and a 50-pip target, the strategy needs to win about 58% of its trades just to break even before costs. It won 48%, and with over 200 trades a year the commissions added a heavy extra cost.
Is a 48% win rate bad for a breakout strategy?
It depends on the payoff. A breakout with a target larger than its stop can live with 48%. This one risked more than it aimed to make, so 48% is far too low.
Do breakouts of yesterday's high and low often fail?
On hourly GBP/USD over these ten years, often enough to lose money in every year from 2016 to 2026. Many breaks of the previous day's range did not follow through far enough to reach a 50-pip target.
Reproduce it, then change it
Every number on this page comes from the Backtrex engine. Rebuild the strategy in the app, then change the market, the timeframe or a parameter and see whether the result holds.
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