Let The Stock Market Spit Money At You Like A Broken ATM Machine!
August 20, 2009 by Lance Jepsen
Filed under Stock Market
The closing price is more important than the opening price. Knowing this can give you a serious advantage over most other traders. I’m going to show you how to pull profits out of this truth like money being spit at you from a broken ATM machine!
Let us just dive right into this.
The closing price reflects the final consensus of value for the day. This is the price most people look at when they get off work or when they print their daily charts at the end of the day. It is especially important in the futures markets, because the settlement of trading accounts depends on it.
Professional traders 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”trade against”market extremes and for the return to normalcy. When prices reach a new high and stall, professionals sell, nudging the market down. When prices stabilize after a fall, they buy, helping the market rally.
Amateur traders like you and I behave very differently. Amateurs like us usually trade at market open and then drop off as the day progresses. Most amateurs have to go to work and so they trade on the west coast at market open before work. They don’t check the trade again until after work when they get home. Even traders on the east coast will sneak in a buy or sell at market open while at work and then not check their trading account again until the end of the day. At market close, the participants who are still trading are mostly professional traders.
Knowing this is a huge advantage! Why? Because it means that closing prices reflect the opinions of professionals. 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. You want to trade with the professionals, not against them.
If a stock opens and runs up near its day’s high at market open, then falls the rest of the day and closes near its day’s low at market close, you want to close out your position if you are long. 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.
