As some of you have already known, daily highs and lows act as a relatively strong support and resistance level. When price is near the low of yesterday, sometimes, we will observe reversal signals and price subsequently moves higher. In a strong trend or a swing in the market, prices will move in the trending direction and you seldom see price moving against the high or low of the previous day. If price indeed moves against the trend and take out the high or low of the previous day, it could mean that the trend is stalling or trend is reversing.
Check out the chart for visual illustration. This chart shows EURUSD daily candlesticks. From the shaded area, you can observe that price is steadily moving lower and at no instance did price broke above the high of prior day. When price indeed broke the high of prior day, you see that the trend starts to shift. If you are holding a medium term to long term position to sell EURUSD during that period, you would want to close off the position since trend direction is no longer in your favor. Depending on your trading approach, you may end up going long when price breaks the high of prior day, possibly signalling direction change.
Hence, if you are holding a short position and riding the swing lower, you practically have to do nothing except to monitor if price broke above the prior day high. That is why monitoring the daily highs and lows are important and it forms part of your decision making process to trade, hold on or to close off a positon.
