The Close of a Bar is Meaningless

[joshdance 10]

Someone posted in another thread that he uses a 6000 tick bar chart, and that he waits for the bar to close before entering the trade. That prompted me to write this, which is something I have been wanting to do a mini rant about but just haven't yet. As always, this is solely my opinion as there is little "truth" in the markets but rather we merely have opinions and our own view of things.

 

Bar closes are not "important" in the sense that they mean anything significant to any significant number of people, except in one major case: the close of the day. The day itself may be structured such that we subdivide it into periods which allow us to function more effectively (for example, we may define the first half hour as the opening range, the first hour as the initial balance, and we may refer to the morning, midday, and afternoon, and so on); however, the only instance in which the market really has the notion of a "close" is the close of the day, and given the global nature of markets, the true close of the market comes at the end of the week, when there is a true break from trading for 48 hours.

 

Maybe that ruffles your feathers, if you are a fan of VSA or some other strategy which pays attention to the bar close, but the logic should be clear. We are all watching the same market, but one trader uses a 5 minute bar, one uses a 1 minute bar, another a 30 minute bar, another a 10K vol bar, another a 5K tick bar, another an 8 range bar, and so on. These are just data presentation mechanisms, and the market does not have a concept of any of them; they are purely our creation. The close of a bar is a snapshot of a price traded in the flow of market activity.

 

What are your thoughts? If you use the closing of a bar as a part of your trading, or if you feel that a bar's closing price is important, can you explain and convince me (or others)?

[BlueHorseshoe 10]

We are all watching the same market, but one trader uses a 5 minute bar, one uses a 1 minute bar, another a 30 minute bar, another a 10K vol bar, another a 5K tick bar, another an 8 range bar, and so on. These are just data presentation mechanisms, and the market does not have a concept of any of them; they are purely our creation. The close of a bar is a snapshot of a price traded in the flow of market activity.

 

What are your thoughts? If you use the closing of a bar as a part of your trading, or if you feel that a bar's closing price is important, can you explain and convince me (or others)?

 

I couldn't agree more, especially when it comes to intraday trading, as you say.

 

Except that you missed a bit . . . In addition to the fact that you're trading 5mins, I'm trading 3mins, and Joe Soap is looking at a 20min chart, there's also this to consider: you and I could both be looking at five minute charts, but if my five minutes are staggered by, say, just one minute, then I'll be looking at a rather different chart to you. If price moved a lot in that 'sixth' minute, then your five minute candle will be a nice long one, and I'll have some crummy little doji.

 

So I agree: intraday closing prices are a completely arbitrary construct in which a discrete time structure is imposed on continuous price data.

 

And yet I only take entry signals on a bar closure. Why on earth would I do that? Because I'm working with a backtested strategy that uses the indicator value on the close.

 

Another thing to consider: when a trader says 'this works on five minute charts', this isn't necessarily to do with the close. If it doesn't work on daily charts, then its just as likely that it would work on a five min chart using the low price, and wouldn't work on daily charts using the low price. This seems slightly logically inconsistent with my earlier statement - perhaps its because I haven't eaten all day . . .

[SIUYA 11]

I agree with the first two posters - its arbitrary, however if you test for a particular method, then stick with that for consistency.

I find it funny when someone says it works on a 5min bar, but does not on a ten minute bar.....to me it does not make much sense.....anyone else know?

 

Personally I find I like to use he close of bar as just an extra confirmation that there is strength for the move I want - ie; if I think something is going up, i dont want a spike to get me long if I am buying breaks, I want a close of the bar (relative to every other bar I am looking at) as an extra confirmation that the move might have some vailidity.

Now before it starts - yes - the spike I talked about could just be on the close of that bar and in fact is still largely irrelevant, however I view it that if I am trading a 5 min chart, and the last few 1 min charts of that bar have been above the buy level, then that tells me its more of a valid break as opposed to the probability it just happened to spike on the close......maybe I should look at the last two 1 minute bars, maybe, maybe, maybe.....but for me its just something that helps confirm things for me.

 

The other thing about on close of bar, is that if using more automation it can stop multiple triggering of systems if they whip up and down through a level, when you only want the bar to fire once on the close. Sure you might have it fire just once per bar as well.....but then this is just as arbitrary. This is the key for me as I try and automate somethings....making it work with a system as opposed to just firing all the time.

I also find it an easy measure when looking to say short a rally. I am looking for some sort of pullback to occur before I short. .....a close of bar, or a low of the previous bar is just as arbitrary.....but you have to pick something.

 

I have mucked around with range bars to try and minimise the issues involved here, but have found in fast moving markets, the range bars can often give a distorted view - iel 5 range bars might occur in one minute bar - so while they are good at eliminating some of the noiseless chop, the downside is the reverse in quickly trending markets.....so I use range bars as a visual que, and have stuck to time based bars for triggering ......realising its all arbitrary anyway. - all these squiggly lines can really mess with the mind......:doh::crap:

Edited February 13, 2012 by SIUYA

[onesmith 10]

Great topic. I'm especially interested in what the non-descretionary robot side of everyone thinks

 

...about the value of C?

[johnw 10]

Great topic. I'm especially interested in what the non-descretionary robot side of everyone thinks

...about the value of C?

 

 

Yes it is a great topic onesmith and joshdance has introduced it well as can be seen from the responses.

 

I don't use it anymore but for some time I saw the Close from Siuya's point of view as a snapshot ... yes I agree that price may close up in this 3 minute bar but on another guy's machine it may be the following bar and that is why I used Close as a component of the Typical price [(H+L+C)/3]

Now I don't even do this.

 

As has been clearly stated, Close of day, week month, quarter is important and becomes even more so if it is preceded and succeeded by both higher or lower Closes.

[joshdance 10]

This is right up my street.Great stuff josh.I agree,but i'd also add the daily/weekly high and low are fixed points after the close and they are massively important for me personally,particularly in their relationship to each other.

 

Absolutely mitsu, and I thought about addressing other points of interest in my initial post but decided not to, to keep it simple.

 

I would conclude that the high and low of a particular bar is largely irrelevant as well. Although, boundaries can be formed if we group the market's flow together and we can observe areas that we term support and resistance, and these may be useful to some traders. With respect to the high and low of a day, or week, I think these can be seen as important for the same reason that the open or close for those periods are, namely that the day and week are clear delineations of trading activity.

 

To briefly add to this: Highs and lows of groups of bars form boundaries, and we often use these boundaries to make decisions. We are taking highs and lows as extremes, and this differs from the close. The close is taken at an arbitrary point, whether it's when a certain time arrives, or when a certain number of ticks have gone by, or when a certain amount of price movement up or down has occurred. Highs and lows are not taken at an arbitrary point; rather, the market generates the transaction information, and we observe the boundaries by grouping transactions together. The market does not generate a "close", except at the end of the day or week. True, we only observe a "high" or "low" in the context of a period of time or activity. However, the "close" is an arbitrary definition of the end of something, which has no end except once per day and once per week.

Edited February 13, 2012 by joshdance

[SIUYA 11]

While the highs and lows may form boundaries, the close does give a "relative measure" to the previous closes - for that particular time frame.....think about this in terms of watching a single sgiggly line of a 5 min chart without the highs and lows as boundaries. Sometimes even this can give a reasonably clear picture of whats happening without the noise of the highs and lows

 

think about it in terms of a market that is actually going nowwhere and continually reverting back to its close which might be in the middle of some large range bars.

[RealDemo 10]

Good topic joshdance.

[Predictor 11]

I think the highs/lows are more useful... I agree what you claim makes sense. Only one thing is that the close could work similar to a moving average, so I would have to disagree that its meaningless. But, I agree it may not be the most meaningful way to view price..

Edited February 13, 2012 by Predictor

[yom 10]

What if you have no open or close, just hi and lo. no indicators, with 4 or 5 bars identical in range give or take. How could you make an assessment of the order flow, absorbing or distributing without a key element of market psychology present, the CLOSE regardless of time frames. For me the OPEN is useless, even if a gap the psychology of market conditions is present in the close.

[Predictor 11]

The close shows the path the market took through time, as measured at an arbitrary but consistent point in time. This pondering on the close is really a specialization of a more general question on how important that the path, even whether it is important, that the market takes over time is meaningful.

 

Some methods such as point/figure and range bars minimize the importance of the path while other charting methods (line on close) focus primarily on the path taken.

 

Curtis

[MightyMouse 12]

The close is a piece of information. Consider it the way you would consider a book in a library: Its useless until someone uses it.

 

I get in after the close all the time. I wouldn't be able to get in if I didn't have a close, so in my case the close has a great deal of importance. However, I do not trade with time bars for short term trades so I can't comment on how or if a 5 minute bar trader could benefit from the close of the bar.

[TimRacette 11]

My opinion is that you cannot interpret the candle until it is full closed. A 15-min candle for instance can be 1 or 2 minutes away from closing in a big body bearish candle and then rally to form a hammer. Wouldn't you agree?

[joshdance 10]

My opinion is that you cannot interpret the candle until it is full closed. A 15-min candle for instance can be 1 or 2 minutes away from closing in a big body bearish candle and then rally to form a hammer. Wouldn't you agree?

 

Yes, and then in the next 15 minutes the market can trade lower, forming a nice bearish 30 minute bar. And then in the next 30 minutes it can rally stronger, forming a nice bullish reversal bar with a big long tail on the 60m. But then you look over to your 240m chart and notice that, alas, it has closed much lower than it opened at the same time the 60m closed up.

 

I suppose you will say that the answer is to stick with one timeframe, and go with that. I think that if you are paying attention to bar closes, that this is probably the best way.

 

Hopefully my point is clear. If not, here are several different pictures of the same event on different periodicities.

[joshdance 10]

What if you have no open or close, just hi and lo. no indicators, with 4 or 5 bars identical in range give or take. How could you make an assessment of the order flow, absorbing or distributing without a key element of market psychology present, the CLOSE regardless of time frames. For me the OPEN is useless, even if a gap the psychology of market conditions is present in the close.

 

I don't think a conclusion can be reached regarding order flow, accumulation or distribution from the closing price of an intraday bar. If we are talking about a daily bar, or a weekly bar, then I am more inclined to accept that.

 

For someone to accept that the close of an intraday bar, be it a 5m, a 30m, or whatever, has significance, then he must also accept that the market places significance on that time.

 

I do feel that the first hour of trading, from 9:30 to 10:30, can be isolated and examined, in such a way that reasonable conclusions may be drawn about the state of the market that day. So, for me 10:30 is actually an important time to assess the first hour of trading.

 

But say you are watching a 30 minute chart, and at 1:00pm you notice that the close of the bar is near the lows. You are looking to short, but you wanted to wait for the bar to close near the lows. This gives you some validation or confirmation. This implies that the market (meaning other traders) view this particular time (1:00pm, or generally, every half hour) as an important time. It also implies that the 12:30 to 1:00 "window" of the market is more important to you than the 12:25 to 12:55 window, even though they are both half an hour. Also implied is that you are not so concerned with what happens from 1:00 to 1:05, since a 30 minute bar starting at 12:35 will be closing then. Finally, it's implied that you do not care if the market rallies strongly from 12:50 to 12:55, as long as it closes low AT 1:00. Not a second before, not a second after.

 

It follows then, that you are very concerned, ultimately, with one single quote: the last traded price at each half hour every day, or at least how it relates to the previous quote, and perhaps the high and low of that period. There's nothing wrong with that ultimately IMO, it's just the reality of accepting the closing price of an intraday bar as significant in some way.

 

If a trader believes that the market's goal is to get price to a certain place at a certain exact time during the day, then it follows that the closing price of an intraday bar will be significant to that trader. If a trader does not believe that, then why does he care about a snapshot of a price at an arbitrary time?

[SIUYA 11]

For someone to accept that the close of an intraday bar, be it a 5m, a 30m, or whatever, has significance, then he must also accept that the market places significance on that time.

 

not necessarily so. If the trader thinks 5min bars are better than 6min bars then yes - the trader is likely to be deluding themselves, however it can still be a more visual representation that suits the system they are trading, with little relevance to what the market is thinking, as it provides a visual measure to use, or a way to trigger a trade setup.

 

I do feel that the first hour of trading, from 9:30 to 10:30, can be isolated and examined, in such a way that reasonable conclusions may be drawn about the state of the market that day. So, for me 10:30 is actually an important time to assess the first hour of trading.

 

doesn't this go against what you just said above.....and I guess this is what you are getting at, it is more important to understand the context of what is happening based on your designated time frame - for trade lengths - rather than bar lengths. This is the setup, the trigger may be the bar close - or previous bar low/high ---- which is just as arbitrary.

 

But say you are watching a 30 minute chart, and at 1:00pm you notice that the close of the bar is near the lows. You are looking to short, but you wanted to wait for the bar to close near the lows. This gives you some validation or confirmation. This implies that the market (meaning other traders) view this particular time (1:00pm, or generally, every half hour) as an important time. It also implies that the 12:30 to 1:00 "window" of the market is more important to you than the 12:25 to 12:55 window, even though they are both half an hour. Also implied is that you are not so concerned with what happens from 1:00 to 1:05, since a 30 minute bar starting at 12:35 will be closing then. Finally, it's implied that you do not care if the market rallies strongly from 12:50 to 12:55, as long as it closes low AT 1:00. Not a second before, not a second after.

 

It follows then, that you are very concerned, ultimately, with one single quote: the last traded price at each half hour every day, or at least how it relates to the previous quote, and perhaps the high and low of that period. There's nothing wrong with that ultimately IMO, it's just the reality of accepting the closing price of an intraday bar as significant in some way.

 

If a trader believes that the market's goal is to get price to a certain place at a certain exact time during the day, then it follows that the closing price of an intraday bar will be significant to that trader. If a trader does not believe that, then why does he care about a snapshot of a price at an arbitrary time?

 

it just provides a trigger - the rest is a setup.

Each bar is insignificant in itself but together they form the flow/the pattern/the mood of the market, however if you say you want to go short (based on some rationale/reasoning/setup), then you can either go short immediately and just accept it, OR you could wait for some trigger of confirmation your setup idea might be correct. This confirmation might be arbitrary, but it still might be better (or not ) than a random entry......assuming of course that you are trying to get into a trade idea with the smallest possible risk, and to have that trade have a high likelihood of immediately going for you.

 

Many of the support and resistance levels could be argued to be just as arbitrary, and yet you still need a trigger unless you just have prices sitting waiting to go......

[johnw 10]

...........................................................

Each bar is insignificant in itself but together they form the flow/the pattern/the mood of the market,...........................................................

 

Many of the support and resistance levels could be argued to be just as arbitrary, and yet you still need a trigger unless you just have prices sitting waiting to go......

 

gm Siuya,

 

The bars form the orderflow because The Trader creates them from orderflow in the first place.

 

The price moves more or less diagonally across our screen and from time to time

it intersects with horizontal zones representing supply and demand ... this is the sum total of my 15 year learning experience.

 

If we were having this conversation 10 or 12 twelve years ago, I would have offered a more complicated analysis of trading.

But in the search for a profitable trading style I have gradually reduced myself to the simplicity of the statement above.

 

I think that the biggest enemy within ourselves when looking at the screen is delusion ..self delusion ... and I do not mean this in an unkind spirit.

The enemy of delusion is simplicity [ well it is one of the enemies] and therefore the less moving parts that I permit myself to look at and the less opinions and thoughts I hold concerning orderflow, then the less likely I am to trip over my own shoe laces.

[johnw 10]

Just to push on with this conversation for bit ... and then I will shut up and go away.

 

If I were using time bars and the price flow became snagged on a supply/demand zone, I would then need to maintain a running calculation of the number of contracts from the time the price became snagged, which was probably in the middle of a bar.

 

Whilst I am staggering under the burden of doing this, I am not paying attention to the only thing that matters to me ...Price

 

How many times have we all made the correct analysis of what is going to happen next, only to find that some large MOs have been fired into the arena and price has taken off without us being onboard.

Conversely when we stuff-up, we are always on board, because we are always filled.

 

Well this happened to me once too often and I vowed that I must always watch the price ... nothing must distract me from watching price.

 

This single decision marked the turning point in my trading because it forced me back beyond the bars and into the orderflow

Edited February 14, 2012 by johnw

[yom 10]

I don't think a conclusion can be reached regarding order flow, accumulation or distribution from the closing price of an intraday bar. If we are talking about a daily bar, or a weekly bar, then I am more inclined to accept that.

 

For someone to accept that the close of an intraday bar, be it a 5m, a 30m, or whatever, has significance, then he must also accept that the market places significance on that time.

 

I do feel that the first hour of trading, from 9:30 to 10:30, can be isolated and examined, in such a way that reasonable conclusions may be drawn about the state of the market that day. So, for me 10:30 is actually an important time to assess the first hour of trading.

 

But say you are watching a 30 minute chart, and at 1:00pm you notice that the close of the bar is near the lows. You are looking to short, but you wanted to wait for the bar to close near the lows. This gives you some validation or confirmation. This implies that the market (meaning other traders) view this particular time (1:00pm, or generally, every half hour) as an important time. It also implies that the 12:30 to 1:00 "window" of the market is more important to you than the 12:25 to 12:55 window, even though they are both half an hour. Also implied is that you are not so concerned with what happens from 1:00 to 1:05, since a 30 minute bar starting at 12:35 will be closing then. Finally, it's implied that you do not care if the market rallies strongly from 12:50 to 12:55, as long as it closes low AT 1:00. Not a second before, not a second after.

 

It follows then, that you are very concerned, ultimately, with one single quote: the last traded price at each half hour every day, or at least how it relates to the previous quote, and perhaps the high and low of that period. There's nothing wrong with that ultimately IMO, it's just the reality of accepting the closing price of an intraday bar as significant in some way.

 

If a trader believes that the market's goal is to get price to a certain place at a certain exact time during the day, then it follows that the closing price of an intraday bar will be significant to that trader. If a trader does not believe that, then why does he care about a snapshot of a price at an arbitrary time?

 

You have made a strong case, both the price players and time players are irrelevant at the intraday level, But it is also these both types of players which make the entire picture. The Long term players are there always as the makers of the market manipulate the structure to satisfy their desired positions to acquire. BUT even those guys are TIME players just in a macro sense. And this can be seen when many of them have the same view on the larger time frames. Intraday is a suckers game no doubt. Thanks for your reply Josh

[BlueHorseshoe 10]

Here's a question: do any of you who trade using closing prices use a 'line on close' chart as opposed to bars, candlesticks etc?

[yom 10]

Here's a question: do any of you who trade using closing prices use a 'line on close' chart as opposed to bars, candlesticks etc?

 

 

Nope i dont care about closes really,but it is useful infromation i think, i'll generally enter 10 seconds b4 the close im primarily a time trader, price is basically irrelevant, when times up the market will move regardless of price. And when time is up for a large spectrum TF player them current prices will not be seen again for some time IMO

[BlueHorseshoe 10]

I find it funny when someone says it works on a 5min bar, but does not on a ten minute bar.....to me it does not make much sense.....anyone else know?

 

This makes sense up to a point, I think. When I test something I normally expect it to work on broadly adjacent timeframes. This is actually a great way to create a 'quasi-unseen data set' on which to test a completed strategy. Though the new timeframe test data will bear a resemblance to the development data, it will also provide a new set of specific data points. This can help in identifying over-optimisation, and also tends to give a more realistic representation of how the strategy might perform in real time trading.

 

Nevertheless, there are significant differences between distant timeframes (5min and daily, say), owing to things like intraday volatility. There are plenty of strategies which, if you ignore commission and execution costs, perform the same on 5min charts as daily charts. Once you factor in the costs of trading these strategies then lose money on a 5min timeframe. That's because commission and execution costs are fixed across all timeframes but average profit per trade is not. This is the danger inherent in focussing too much on metrics like Profit Factors rather than actual dollar returns.

 

Sometimes the above is what people may be referring to when they specify a particular timeframe for a strategy.

[SIUYA 11]

Here's a question: do any of you who trade using closing prices use a 'line on close' chart as opposed to bars, candlesticks etc?

 

only for a simple and clear reference as to where market is relative to the recent past - but generally no.

For me - I wont sit and wait for a bar to close, but when trying to automate things, or when using backtesting I will use it as opposed to just highs and lows.

[realbrush 10]

Amen for that Joshdance, I have been bugged by this ever since I started trading and couldn't have said it better. You are right about the daily and weekly closes and that is also what the big investors look at.

[BlueHorseshoe 10]

only for a simple and clear reference as to where market is relative to the recent past - but generally no.

For me - I wont sit and wait for a bar to close, but when trying to automate things, or when using backtesting I will use it as opposed to just highs and lows.

 

Thanks. Pressumably your trading methods aren't dependent on closing prices, so you don't need to worry about discrepancies between backtesting and intra-bar real-time trade entries?