The Close of a Bar is Meaningless

[YertleTurtle 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)?

 

I personally think you are wrong about the close of a bar not being important. Sure the average losing trader uses a multitude of different time frames but it is the professional money that moves the market. Professionals understand that amateurs are clustered around different time frames. This is why you will see price action pick up towards the end of an hourly bar (one of many examples).

 

If you believe that the market is fractal in nature then the close of any bar has significance. On the other hand the open IS meaningless on all time frames.

[jackj 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.

 

You say that the Close is a key element of market psychology, but then say that you find the Open useless. To go back to the OP's point, the value in anything is whether others are also using it. You appear to be referencing daily bars with your statement, but most are referring to intraday; more of an agreement that on Daily and higher tf the Close has significance. But recognize that the daily open is a reference as to where price was for European session traders at that time. It's not a random place where the market opens. While you may choose to put less value on it than on RTH, it is something "of value". In fact, simply look at how price reacts to it intraday and you'll see that other traders do take note of it. Lastly, as we're seeing as I type this, the Daily Open is affected by news so often released at 8:30A ET, clearly an important issue, hence where price is as a reflection of that news should have some value.

 

BTW: not referenced yet is the fact that two persons' computers may be synched slightly differently with respect to time, or have a faster/slower data feed, causing a :05 candle on each's (both started at RTH session start) to look differently.

[TheNegotiator 13]

Josh,

 

I agree with the premise that the close of any particular tf bar has no real importance in isolation.

 

I believe the highs and lows of any particular tf bar have little real importance in isolation other than for activity based extremes.

 

The one thing I would say(and I think this is what Siuya mentioned) is that in the context of a move and flow of said move which is being monitored using a specific tf(time,vol, or range etc), it is the act of closing which is impotant as it completes the bar. Then, the activity can be properly assessed. Think about this. If a market is strongly trending up and in the first 5mins it does 50 ticks, then 60, then 35, 28 then in the 3rd minute of the current bar it's only done 10, does that automatically mean that the trend is reversing and you should go short? No, of course not. So my point is that from a price structure perspective, the close of a 5min bar isn't necessarily important, yet from a flow perspective it is.

 

Just a thought.

[yom 10]

You say that the Close is a key element of market psychology, but then say that you find the Open useless. To go back to the OP's point, the value in anything is whether others are also using it. You appear to be referencing daily bars with your statement, but most are referring to intraday; more of an agreement that on Daily and higher tf the Close has significance. But recognize that the daily open is a reference as to where price was for European session traders at that time. It's not a random place where the market opens. While you may choose to put less value on it than on RTH, it is something "of value". In fact, simply look at how price reacts to it intraday and you'll see that other traders do take note of it. Lastly, as we're seeing as I type this, the Daily Open is affected by news so often released at 8:30A ET, clearly an important issue, hence where price is as a reflection of that news should have some value.

 

BTW: not referenced yet is the fact that two persons' computers may be synched slightly differently with respect to time, or have a faster/slower data feed, causing a :05 candle on each's (both started at RTH session start) to look differently.

 

Well i could not agree more when it comes to different time zone trading, It really all has significance depending on the type of trader a person is. the lack of value for some just shows the type of trader they are, Surely a guy who is playing a 30 year cycle is not even concerned with weekly closes or monthly for that matter, he just wants to buy more at a valued bargain. So all and all its really just subjective to the time your trading i guess

[SIUYA 11]

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?

 

not really. If you are trying to capture the meat of a move, or get on longer trending positions then it does not make much difference. Of course their will be slight discrepancies/tracking errors if you were to back test between the two, however on a lot of different simple tests i have done they are not a major issue using either one.....the highs and lows will get you into more trades often quicker, but also miss some of the losers....its a trade off depending on then where you might set stops etc. etc, etc.

 

when it comes to using a close or not, I guess patience and the more I push myself into that mode is whats works best for me.....hence the wait until close as opposed to anything

 

When it comes to the automation part of it then there are differences, but for what I am ultimately trying to do it should not make a massive difference (I hope/think )

 

eg; today on a system i am testing, I shorted the EUR USD 3 times this morning, stopped them all out, and the fourth got on board the recent move down - however the difference between using the highs and lows v the close on a 1 min chart is a few ticks. When the drop has resulted in a move from 1.312085 (the final short) to currently 1.31470.

 

(In real life I however had set a trailing stop too close and did get stopped at 1.3170 against all my better judgement - while still live testing these things will happen :crap:, as opposed to remaining short with a stop ALERT currently above 1.3156, or just letting the whole thing ride.....the joys of testing and teasing)

 

Plus Yertle, if the close is relevant, how is the open not relevant? unless you can predict the close, the open is ideally the next best place after an on close trigger is fired.....

[joshdance 10]

Professionals understand that amateurs are clustered around different time frames. This is why you will see price action pick up towards the end of an hourly bar (one of many examples).

 

Which hourly bar, and why that one?

When you say "price action picks up" are you referring to activity (volume), or range of price? Both are easy to test, and I'm hoping you've done some testing to back this up? Otherwise I will test it later at some point and likely show that it has no grounding in reality, but perhaps I'll be surprised.

 

On the other hand the open IS meaningless on all time frames.

 

Why?

[bim1 10]

It is a great / gray discussion !

 

I consider CLOSE of the bar and Open of the NEXT BAR very vital to put on a new position or

manage the existing one.

I only look at my Comfort Time Frame.

In different market conditions, my Comfort Time Frames are different.

 

Try these criteria on your own, and may be

you will find a whole new world!

 

Good Luck.

 

Bimal

PS: Happy Valentine's Day, every one.

and safe trading.

[joshdance 10]

Here is an example of what's going on right now in the S&P.

 

The prior overnight low (the line) has been tested once, and then broken, and is now trading above. I have a choice to make if I were to go long--has the market rejected the prior low (43.75) because it is now trading above it? Well, there are only two main ways to trigger this: time and activity.

 

I can wait until X number of seconds or minutes pass without it trading below that line, OR I can wait until a certain amount of activity occurs without it trading below that line. This is essentially 'waiting for the bar close.' It is implicit in how we all trade -- there is some element of time, or activity, for example, in a level "holding" ... well, it can be sold for 5 seconds, or traded 100 contracts, and we will probably not say it has "held". But if it is sold for 2 minutes, or 15K contracts, then we may say it has "held" so far. So we are always imposing our interpretation of importance of time or activity onto the market.

 

So back to the picture, WHEN do I close my "bar"? Most use time. But why? Is it really that important that it's 9:15 now and my 15 minute bar has closed because it happens to be 9:15? This is attached in the second picture.

 

I agree that the general trend of closes of whatever bar you use obvious is important -- we have to take a snapshot somewhere, and this is one way to do it. But in letting time expire, or ticks expire, or anything else determine when we see the market as having reached a point of "close," then I think we are imposing our own notion of "conclusion" on the market, which has no conclusion, except once per day.

[SIUYA 11]

 

I have a choice to make if I were to go long--has the market rejected the prior low (43.75) because it is now trading above it? Well, there are only two main ways to trigger this: time and activity.

 

 

I am sure there are others, and apart from actually having a resting buy long on the low in anticipation then what about a measure to say, if the market bounces X ticks above the low.... this is not dependent on time at all. (I guess this is more classed as the activity element of it) Basing it purely on a time frame will mean you miss the move or get on too late.

....and while you say its 9.15, or 9.30.....apart from press releases the market does not care except maybe the time splitting order algorithms.....this adds another element, as opposed to just saying on my visual/system timeframe if this occurs, regardless of when in the day, I will do this.

 

What I do find interesting in looking at smaller time frames/smaller tick sizes/levels is that you really dont need to be in a hurry as there are many more opportunities that alert you. Sure you might miss some trades, but equally so, the simple measure of waiting for a reaction often works - depending on your attempts to either scalp, swing trade, run things etc. (as zdo says - system specific)

 

either way you need a consistent measure of what appears to be a "rejection", and I think its the consistency that is key...in the right context (I use TRO as an example, he only takes trades if they are 20 ticks from the high or low - it can be as good a measure as any I guess)

 

Plus I am probably rambling now.....all food for thought

[johnw 10]

It is a great / gray discussion !

 

I consider CLOSE of the bar and Open of the NEXT BAR very vital to put on a new position or

manage the existing one.

I only look at my Comfort Time Frame.

In different market conditions, my Comfort Time Frames are different.

 

Try these criteria on your own, and may be

you will find a whole new world!

 

Good Luck.

 

Bimal

PS: Happy Valentine's Day, every one.

and safe trading.

 

 

When the ES rth Next Bar Open mostly equals the Current bar Close, sometimes a tic up or down simply because that is the luck of the draw at bar rollover ... I can't imagine how I am going to find a whole new world.

[bim1 10]

I am bad.

I did not name my comfort time frame.

Even if it is 100 tic bar,

and the last bar is at the end of Friday.

The Next 100 tic bar opens on Sunday evening,

and lots of water must have run thru' the river.

 

Each bar is controlled by its opening price.

Each opening price is compared against last closing price.

 

Some people thrive in the opening gap price.

 

One need to study on its own and let all the good thoughts enter the mind as a seed.

 

Good luck.

[YertleTurtle 10]

Which hourly bar, and why that one?

When you say "price action picks up" are you referring to activity (volume), or range of price? Both are easy to test, and I'm hoping you've done some testing to back this up? Otherwise I will test it later at some point and likely show that it has no grounding in reality, but perhaps I'll be surprised.

 

I haven't done any testing of activity toward bar closes. I have just made observations by watching the currency markets. Often you will have a strong up bar that becomes a down bar in the last 5 to 10 minutes of an hourly bar. If you do test this I would be interested in finding out the results.

 

I'm not sure what you mean by "which hourly bar and why that one?" I only trade currencies so I can only speak about what happens in those markets but its well known that professional traders watch 240 minute charts. This doesn't mean they only place trades every 4 hours but smart money is interested in this timeframe.

 

I am a VSA trader, have been consistently profitable and the signals that I take are based off the closes of particular bars. If bar closes were arbitrary then you would think that VSA traders wouldn't be doing particularly well but most skilled VSA traders have win rates around 65-70%. Obviously volume and spread are other important factors in VSA trading but the close shows who is winning the battle - the bulls or the bears.

 

I understand that its fun to debate things but I don't see how arguing about the value of closes will further anyone's trading. People have successfully traded off of VSA, price action, candlesticks, pitchforks etc. all which consider the close to be important.

[johnw 10]

I am bad.

I did not name my comfort time frame.

Even if it is 100 tic bar,

and the last bar is at the end of Friday.

The Next 100 tic bar opens on Sunday evening,

and lots of water must have run thru' the river.

 

Each bar is controlled by its opening price.

Each opening price is compared against last closing price.

 

Some people thrive in the opening gap price.

 

One need to study on its own and let all the good thoughts enter the mind as a seed.

 

Good luck.

 

 

You are talking of the Daily/Weekly Close and Open and therefore Gaps

 

Try reading the Opening Post of this thread again and it will hopefully put you back on track

[yom 10]

Sorry off topic BUT is every post under scrutiny of a moderator? If so thanks for the convo, i'll be going now

[bim1 10]

Thanks, JohnW.

 

I missed opening point,

but you still can use a broader view

and make use of my comments.

 

Good luck.

[TheRumpledOne 14]

\

 

The chart above has a HORIZONTAL LINE plotted at each of the last 24 closes.

 

If you trade AWAY from the lines ( in the direction of the last cross over ), you'll be making money.

[Marubozu 10]

I disagree...

 

Everything in trading is meaningless unless you have a group of traders who give something meaning.

 

Many traders believe that the close forms patterns, is higher or lower than previous closes and so on, and traders DO make decisions using closing price in their calculations.

 

If your using any indicators you will probably be referencing the closing price of a candle.

 

There for closing price does matter....

 

<< Just playing Devils Advocate :-)

[joshdance 10]

I'm not sure what you mean by "which hourly bar and why that one?" I only trade currencies so I can only speak about what happens in those markets but its well known that professional traders watch 240 minute charts. This doesn't mean they only place trades every 4 hours but smart money is interested in this timeframe.

 

Most equities traders who use hourly bars start them at the half hour, for obvious reasons. Regarding 4 hour charts, I remember having this debate with myself when I used to trade currencies--when do I begin the 4 hour period? Do I start it at 6pm, as this is roughly when asian markets open? Or do I want it to start at 7pm so that a new bar can start when the london market opens around 3am? Or... And you go through all of these possibilities, because on one set of 4 hour bars the signals look great, and on another set starting an hour later they look not so great, and so on.... this is exactly the kind of stuff I hope people will take away from this thread--that it doesn't really matter: a market is a series of transactions, nothing more. How we choose to view it is up to us, and obsessing about an arbitrary placement of values (the close for example) can distract from what the market really is.

 

 

I am a VSA trader, have been consistently profitable and the signals that I take are based off the closes of particular bars. If bar closes were arbitrary then you would think that VSA traders wouldn't be doing particularly well but most skilled VSA traders have win rates around 65-70%. Obviously volume and spread are other important factors in VSA trading but the close shows who is winning the battle - the bulls or the bears.

 

I seriously doubt, not the accuracy of your number, but your method of determining that number (by your own admission earlier, you did not actually do a statistical analysis on something which is possible to determine, so I doubt you did statistical analysis on something which is impossible to determine in the first place, namely, the profitability of a group of traders dispersed throughout the world).

 

I'd say most skilled traders using any method in particular probably have "pretty good" win rate, whatever you want to call that. I've been curious as to why I've been seeing so many VSA traders trading spot forex, a market which has no accurate volume information available whatsoever, but I suppose that's another can of worms for another thread. I use VSA concepts, but not in the traditional sense and certainly not to the degree that VSA traders do, and I use those principles on a market which has volume information available.

 

I understand that its fun to debate things but I don't see how arguing about the value of closes will further anyone's trading. People have successfully traded off of VSA, price action, candlesticks, pitchforks etc. all which consider the close to be important.

 

And this is good to keep in mind -- I'm saying nothing on this thread about the effectiveness of using the closing value of an intraday bar-- if it works for you, and you are profitable, then use it and be happy. This is a thread to get people thinking, nothing more. I suspect that many people in trading do NOT think about what they are doing. They hear "if the bar closes on the highs, then ..." and I am simply presenting another way of viewing the market. This thread was started to get people to think about the markets and how they move, and to help me in my own journey through my understanding of them. It is not to convince people to change, only to help people become more interactive in their own thought process about the markets.

[MadMarketScientist 11]

Sorry off topic BUT is every post under scrutiny of a moderator? If so thanks for the convo, i'll be going now

 

Hi yom,

 

The forum is mostly self-moderated by the members to prevent spammers, etc. New member posts are also moderated for this purpose.

 

thanks,

MMS

[SIUYA 11]

Mitsubishi - very true.

I once dared to ask about a famous persons indicators and weather or not the numbers actually stacked up in tests, not as a judgement but out of interest and in terms of the best way to use them. There were two responses.....

 

from himself - no, they were best applied in context and in combination with other things and used only as a helper (plus there was a bit about, these are proprietary indicators that others pay a lot for etc)

 

from his followers - I was burned at the stake for even suggesting such heresy. (This was on an open chat room on Bloomberg - so one might think there was some level of professionalism there...but no.)

 

Needless to say I took the developers advice and used them as he suggested - his followers however I decided to steer well clear of as they clearly assigned a lot of meaning to something even the developer suggested you dont.

[yom 10]

Hi yom,

 

The forum is mostly self-moderated by the members to prevent spammers, etc. New member posts are also moderated for this purpose.

 

thanks,

MMS

 

 

I understand Thanks MMS, just need to get some content on board is all

[SpearPointTrader 10]

It has been my experience that not only is the close significant, but since the markets are fractal, the close of the bars, on every time frame is significant.

 

A good example would be the appearance of a bear doji or hammer (open and close are at or near the bottom of the bar) above the upper Bollinger Band in a bull market. I have rarely ever seen the market do anything but go down after these post.

 

It does not matter what time frame you are looking at. You will see a price drop at least to the 4 bar moving average. Often the price will drop all the way to the 18 bar MA.

 

Now, on the 3 minute chart, that may be a trend change that takes us all the way to the lower bollinger band as well. The same move on the 10 minute chart, you may find a less significant fluctuation, the 30 minute might reflect it as nothing more than a correction, and you quite possibly won't see it as anything more than a stall in price movement before the bull trend resumes on the daily chart, but the move still occurred just the same. It just wasn't enough to make money trading it.

 

Now, if this same pattern appears on the weekly chart, you might be able to look forward to a months worth of short selling. It will still move from where it is, down each level, and possibly all the way to the lower BB though, same as when you see it on the 3 minute chart. It's just has more room to move on the weekly chart.

 

Either way, the close near the bottom of the bar, in this case means something significant.

[YertleTurtle 10]

JD,

 

I admire your adherence to statistical proof but its tough to debate something using logic if your counter argument is always - where is your statistical proof? I could ask you the same thing - where is your statistical proof that closes don't matter? If you or I did have proof we could then enter debates as the validity of the proof.

 

As for VSA I am not trying to label it the holy grail. It just represents a proven trading style which heavily relies on the close of bars. There are VSA traders trading everything from 2 minute charts to dailies. There are plenty of ways to skin a cat and be a winning trader but I can't think of one that doesn't take the close of a bar into consideration.

 

A single bar means nothing in isolation. A single close cannot either. We need a series of data points to make meaning out of anything in trading. Inferences can start being made as soon as there are two bars or two closes.

 

The close is like a little sample of price and time. Its a snapshot at regular intervals. I doubt these snapshots can tell a radically different story if the shot is at 1:10 instead of 1:00. I haven't bothered to prove this but I see no reason to test this belief. Like you said what I am doing works for me.

 

As for when you should set your 4 hour time bars in the 24 hour forex market - there is a logical choice. On Sundays the spot forex market opens at 5 pm eastern time. This is the logical place to start 4 hour bars as you will have no partial bars on your chart. Its also most likely what the pros do.

 

Lastly, as to why VSA traders are trading spot forex when there is only tick volume available. Its because tick volume is highly correlated to contract volume. This can be verified by putting a chart of the spot FX market up next to the futures contract. There is even a possibility that the spot forex tick data is more accurate than the CME data for the purposes of VSA. The spot market has much greater liquidity than the futures market and this shows up in the tick volume. Spot forex allows much smaller trade sizes which is beneficial to any new trader.

[SunTrader 10]

Josh,

 

Agree intraday closes are arbitrary but as I said previously daily/weekly/monthly/quarterly closes can sometimes be as well due to buy/sell imbalances and so-called "window dressing".

 

Then the previous close loses any importance once the market re-opens.

 

So that even in a 24 hour market if the opening range fails to sustain the previous closing range that shows that previous close was not accepted.

 

Current price in the here and now and then the new opening price to start a new day/week etc are most important.

 

Sun

[joshdance 10]

I admire your adherence to statistical proof but its tough to debate something using logic if your counter argument is always - where is your statistical proof? I could ask you the same thing - where is your statistical proof that closes don't matter? If you or I did have proof we could then enter debates as the validity of the proof.

 

Just to be clear, I'm not offering proof to why the closing price of an intraday bar is unimportant, because it's just my opinion, thus can have no proof. Yet, I clearly explained why I hold this opinion, and was asking for the same as to your opinion of the opening price being unimportant.

 

I am not a big statistical guy, but when people say things like "it's clear that the activity increases near the end of the hourly bar," and this is relatively easy to test, yet the person doesn't bother to test it, I tend to doubt the validity of the claim, if the person doesn't even believe enough in it to actually test it. An assertion stated as an observation is one thing, but to claim it as truth without offering any evidence is IMO at the root of why so many traders wander aimlessly--they accept as fact what is only in reality conjecture, and then perpetuate that information as truth, when in fact it has no real factual ground to stand on.

 

 

I doubt these snapshots can tell a radically different story if the shot is at 1:10 instead of 1:00.

 

Many here who use the closing price of a bar would probably disagree -- in fact, people will wait 20 seconds for a 5 minute bar to close before doing something, so ten minutes would probably be important to some.

 

As for when you should set your 4 hour time bars in the 24 hour forex market - there is a logical choice. On Sundays the spot forex market opens at 5 pm eastern time.

 

Can you link to a reference for this somewhere? I just searched and found some sites say 6pm, some say 4:15pm, some say 5pm. As there is no centralized exchange, it seems not quite right that all trading begins at one time--this is after all, an interbank market.

 

There is even a possibility that the spot forex tick data is more accurate than the CME data for the purposes of VSA. The spot market has much greater liquidity than the futures market and this shows up in the tick volume.

 

Yes but unfortunately you don't get to see that liquidity; you only get to see what your broker shows you. Perhaps the tick volume is somewhat accurate, but you have no benchmark and no way of knowing real volume. I don't think the CME futures contracts are a good representation either, which is why I stay away from currencies altogether.