The closing price is more important than the opening price. You need to know that the closing price is much more important than the opening price. You are about to learn how to pull crazy profits out of the stock market from this simple yet profound truth!
Let’s begin.
The closing price reflects the final consensus of value for the day. When people get off work, this is the price they look at: When they print their daily charts after market close, this is the price they see. It is especially important in the futures markets, because the settlement of trading accounts depends on it.
Institutional and professional traders will trade throughout the day. Early in the day they take advantage of opening prices, selling high openings and buying low openings, and then unwinding those positions as the day goes on. Their normal mode of operations is to fade or trade against market extremes and for the return to normalcy. When a stock price reaches a new high and then buy side volume falls, they sell and push the market down. When prices stabilize after a fall, they buy, helping the market rally.
The waves of buying and selling by amateurs that hit the market at the opening usually subside as the day goes on. Why? On the west coast, most amateur traders have a day job so they put on a trade in the morning before work and then do not check it again until they get home after work. Day traders on the east coast will enter into a position near the opening bell and then go to work and not log in to their trading account again until right before market close. At market close, the participants who are still trading are mostly professional traders.
If you know this, you have a gigantic advantage! Why? Closing prices reflect the opinions of the professional and institutional traders while opening prices reflect the opinion of amateur traders. Look at any chart, and you will see how often the opening and closing ticks are at the opposite ends of a price bar. This is because amateurs and professionals tend to be on the opposite sides of trades. Trade with the pros, not against them.
Let’s say a stock you are long in goes up to its day’s high at market open and then drops the rest of the day and finally closes near its day’s low: you need to close out of your short term position. This is your first clue that the stock has run up enough to get the attention of professional traders who are fading against your position.
I hope you make a ton of cash in the stock market after reading this article. For more of Lance Jepsen’s free trading tips go to stock market and to learn how to correctly use one of the best money making technical indicators visit stochastic oscillator
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