4-Day High-Low Range Breakout Strategy: Rules and Build
The 4-day high-low range breakout strategy marks the highest high and lowest low of the last four daily candles. If the index trades above that high at 3:25 PM, you go long by selling an at-the-money put hedged 10 strikes lower; below the low, you go short with a hedged at-the-money call. Each trade exits the next day at 3:25 PM, or earlier if the sold option doubles.
Where the strategy comes from
A speaker at Option Symposium 6.0 in 2024 shared this as a hands-on rule set between broader talks on option trading. We built it on Tradetron and backtested it. The rules, as presented on the slide:
| Rule | As presented |
|---|---|
| Entry (long) | Mark the highest high of the last 4 days. If LTP at 15:25 is above it, short the ATM put and buy a put 10 strikes away as a hedge |
| Entry (short) | Vice versa: below the lowest low of the last 4 days, short the ATM call and buy a call 10 strikes away |
| Exit | When the sold leg is up 100%, or the next day at 15:25 |
In plain words: you go long when today's close is the highest of the last five days, and short when it is the lowest.
The idea behind it
A close above the recent four-day range says buyers pushed price somewhere it hasn't been all week, late in the day when the session's direction is mostly settled. The bet is that this strength carries into the next session. Instead of buying futures, the strategy sells an ATM option in the breakout direction. That way it also earns from time decay overnight, and it doesn't need a big follow-through move: it profits if price simply doesn't fall back much.
What one trade looks like
The long-side position at expiry. In practice the strategy exits the next day, before expiry.
On BANK NIFTY, strikes are 100 points apart, so 10 strikes is 1,000 points. Keep the hedge distance in strikes, and check what it means in points for the index you trade.
The numbers show the character of the strategy. Each trade usually makes a modest amount and occasionally loses more, so it depends on being right more often than wrong. When we backtested the original BANK NIFTY version, that was exactly the pattern: the average losing day was larger than the average winning day, and a higher win rate carried the P&L curve. Test that it still holds on the index and period you plan to trade.
Building it on Tradetron
The build uses four sets so each case has its own clean logic.
- Set 1, long entry: LTP of the index > Highest High Value of daily highs over the previous 4 candles, AND Time ≥ 1525, AND Positions Detail shows no open position. Position: sell ATM put, buy put 10 strikes lower, current expiry.
- Set 2, short entry: the mirror image with Lowest Low Value of daily lows. Position: sell ATM call, buy call 10 strikes higher.
- Sets 3 and 4, expiry days: the same two entries, but with a Days Difference check that recognises expiry day and picks the next expiry instead of the one expiring that afternoon.
- Exits: a time exit at 3:25 PM on the next trading day, and an SL trigger on the sold leg at its entry price × 2, using the Traded Instrument keyword for the entry price.
Backtesting it
Because trades are held overnight and the strategy has no daily universal exit, backtest it as Positional, with the expiry setting at None. Running a positional strategy as intraday (or the reverse) gives wrong results.
Backtest settings for a positional strategy: Type Positional, Expiry None
The strategy trades at most once a day and holds one position at a time, so costs stay low compared with intraday strategies that enter and adjust many times a day.
Ideas to test
- Lookback length: 3, 4, 5 or 10 days. A longer range means fewer, stronger signals.
- Hedge distance: a closer hedge cuts the maximum loss but also the credit.
- Strike: sell one strike out of the money for a wider cushion and less premium.
- Exit: a 50% stop instead of 100%, or a profit target on the sold leg.
Change one thing at a time and check results across different years, not just the last few months. See why backtests don't match live trading before you trust a tweak.
Pros
- Simple rule with one decision a day
- Selling options earns time decay as well as direction
- Defined risk thanks to the hedge
- Few trades, so low costs
Cons
- Losses tend to be bigger than wins; depends on win rate
- Overnight gaps can jump straight past the 100% stop
- Range-bound weeks produce breakouts that fail the next day
- Expiry-day handling adds complexity to the build
For the intraday cousin of this idea, read the opening range breakout on Nifty 50 stock options. For expiry changes, see what to check after the lot size change.
Frequently asked questions
What is a 4-day high-low breakout strategy?
It compares the current price with the highest high and lowest low of the previous four daily candles. A close above the 4-day high is a long signal; a close below the 4-day low is a short signal.
Why sell options instead of buying them on a breakout?
Selling an ATM put on a bullish breakout profits if price rises, stays flat, or dips only slightly, and it earns overnight time decay. Buying a call needs the move to continue. The hedge 10 strikes away caps the loss if the breakout fails badly.
Can I still trade this strategy on BANK NIFTY?
BANK NIFTY now has monthly expiries only, so the weekly version shown originally is not possible. You can run it on BANK NIFTY monthly options, or on NIFTY, which still has weekly expiries on Tuesdays.
How do I backtest a positional strategy on Tradetron?
Choose Positional as the backtest type and set expiry to None when the strategy has no fixed daily exit. Selecting the wrong type gives incorrect results.
What happens on expiry day?
The strategy switches to the next expiry when the signal comes on expiry day, so it never opens a position in options that expire the same afternoon.
