Opening and closing prices are often regarded as the two most important price points within a given trading session. As a result, these data points are followed closely by market participants and analysts alike.
Also known as the “open” and “close,” these price levels provide significant reference points to gauge strength and identify important price levels to help confirm trading ideas or biases.
Although a session’s high and low may be above or below the opening and closing prices, these often carry less weight than the actual open and close. Intraday price fluctuations are often thought of as “noise” and many traders rely more heavily upon a security’s closing price than the intraday high or low. In fact, prior to electronic trading, the closing price was the only price listed in the newspaper.
All Eyes on the Closing Price
The closing price can reveal much more than the last traded price within a session. It can indicate trader confidence and overall strength. For example, if a buying rally is seen at the end of the day and the price closes at or near the daily high, this can be interpreted as a sign of confidence as many traders were willing to hold overnight.
On the other hand, if a selloff is witnessed towards the end of the day, this can be interpreted as a bearish signal indicating that many traders were eager to exit their positions before the closing bell.
Additionally, the closing price is always referenced when discussing the performance of a security or index. When you hear, “The Dow is down 100 points today,” that is in relation to where it closed the prior trading day. When a security or index opens with a gain or loss, this is also in reference to the prior day’s close.
Use Closing Price to Confirm or Deny Trends
The closing price can be an important factor when determining the strength of a trend. Within an intraday trend, for example, a new intraday high is much less significant than a record high close. On the other hand, an intraday low is less important if the price recovers before the close.
For multiple day or weekly trends, gauging the closing price in reference to surrounding bars can help to determine trend strength or predict reversals.
In the Natural Gas (NG) futures trading chart above, the most recent price candle closed lower than the previous 4 days and could indicate a change in trend.
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