The Close of a Bar is Meaningless

[SunTrader 10]

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.....

DeMark?

 

(I hate this stupid min 20 characters BS message) there done!

[johnw 10]

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

Maybe one of the reasons why this thread seems to be so popular is because it is challenging us to re-evaluate how we deal with uncertainty.Nothing we do can make trading less uncertain (the future direction). But if we become certain that something we use is adversely affecting our trading we should change it immediately.

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

 

Excellent comment, I couldn't agree more and that is why I only trust myself with simplicity.

 

I have a suggestion for people to try if they have not tried this exercise before.

 

Switch your chart to one tic and watch what happens ... every bar closes on the high or the low ... watch it for a reasonable period of time over several days and see what comes to mind.

 

I don't know what bar sizes and bar types People are running, or whether they think that the Intraday bar close is useful or useless.

 

But if you want to know the root of the bars you watch then you might find this exercise enlightening.

[johnw 10]

Rolling along ...

 

What you will be doing by undertaking this exercise is revealing everything that goes on inside the bar that you have elected as the cornerstone of your trading method.

But you will be seeing it for the first time.

 

Some of you may look at the one tic chart and see nothing ... nothing at all.

Other People may be amazed at the amount of information they have been denying themselves.

 

Some People may be thinking right now that the action is too fast, whilst other People correctly surmise that their synthesized bar must be building at the same speed ... how can it not!

[YertleTurtle 10]

Jwas asking for the same as to your opinion of the opening price being unimportant.

 

My opening comment was meant to be a joke. I should have been more clear.

 

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.

 

I have no idea how to go about testing this. I didn't intend for this to be construed as a statement of fact. If it is true I would classify it as a loose correlation.

 

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.

 

I meant from a VSA standpoint - I think averaged over time you would end up with the same number of trade signals regardless of how you tuned the clock. I can't speak about other modalities but I would guess the same would hold true.

 

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.

 

Sure -

Trading Sessions | When Can You Trade Forex? | Learn Forex Trading

Forex Market Hours

Forex Global Market Trading Hours

Forex Trading Hours - Worldwide Forex Trading Times

 

They all say the same thing - Forex market opens on Sunday 5 pm EST (10:00 pm GMT), closes on Friday 5 pm EST

(10:00 pm GMT).

 

The reason why professionals look at 4 hour charts is because it slices the day by session. Asia, Europe and North America each get one 4 our morning bar and 1 4 hour evening bar.

 

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.

 

Why do you want to invalidate the futures contract volume? What do you trade? I think while we are challenging everything we know about trading you might consider challenging the notion of precision. Do you really need to know the exact volume figure to trade with volume? Do you need to know the exact price? Is anything this precise in trading? If needed absolute precision in trading people would only trade watching time and sales (some do). For most of us we don't want all the noise. This is why most of us would prefer to look at a 15 minute chart than a 1 minute chart.

Edited February 14, 2012 by YertleTurtle

[johnw 10]

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

What's interesting about this thread is,as my trading has improved i've settled into a routine (if it 'aint broke don't fix it) I've always felt that this is potentially a problem- habit,i mean.Jury still out.

 

This is the catch-22 we all face to some extent or another.

 

On the one hand we strive for consistency and results and on the other hand we are unaware of our ultimate potential ... we just know that it lies in front of us.

 

You mentioned 'habit' and I believe that as our consistency becomes more consistent then it becomes a good habit leaving us free to open our minds to pushing our potential.

[joshdance 10]

Why do you want to invalidate the futures contract volume? What do you trade? I think while we are challenging everything we know about trading you might consider challenging the notion of precision. Do you really need to know the exact volume figure to trade with volume? Do you need to know the exact price? Is anything this precise in trading? If needed absolute precision in trading people would only trade watching time and sales (some do). For most of us we don't want all the noise. This is why most of us would prefer to look at a 15 minute chart than a 1 minute chart.

 

This is a good point; I trade equity index futures, almost always ES. Whether I need to know the exact number or not, well surely we don't need a lot of things. But I feel more comfortable knowing that the data I get is accurate and centralized, unlike the spot forex market. I just don't want to trade a market where I can't even see things at the transaction level, such as spot forex. I used to trade forex and now could no longer do it due to this.

[YertleTurtle 10]

@JD,

 

Currency futures are regulated and have equal precision to the e-mini S&P. This doesn't mean this data is perfectly accurate. The big players come up with ways to trade off of the exchange.

 

@Mitsubishi,

 

I guess you have a different trading style but you are saying that 1 tick up or down would mess up your trading? I'm not sure what maths you use in trading but most indicators are averaging data. Whether you are calculating daily pivots, moving averages or stochastics I find it hard to believe that a couple of ticks would change any trading outcomes drastically.

 

Also - different charting providers handle data differently coming from the exchanges. You may get different data or bad data or adjusted data just based on what platform you use. If I ask you what is 1 divided by 7 what would reply 0.142857 repeating? Wouldn't .14 be enough precision?

[zdo 20]

...

@Mitsubishi...

 

1 tick up or down ...?

 

:haha: We should note for the readers that Mitsubishi is not typical.

His trading is to the tick AND to the second

[Kiwi 16]

The OP said that the only bar on which the close was important was the daily bar.

 

I often wonder how people can develop such wrong perceptions of market data. But after years I realize that my perceptions also changed and sometimes dramatically as I realize something that, although in front of me all the time, I hadn't perceived.

 

Bar close is important in at least two ways. First it sets a closing price and second it sets the highs and lows for sure ... no more changes.

 

Now, the OP has perceived truth in daily closes. Personally I perceive them in other time frames as well, but, they are market specific. It depends on what timeframes are being watched by a large enough percentage of that market so that closes and ohlc relationships matter for that market. Think about daily closes ... in forex, which close is more important, the London midnight close or the Greek midnight close (corresponds to the end of the Globex afternoon)? So are even daily closes necessarily simple?

 

As a trader I try to understand how the rest of the market is reading what happens and how their expectations of the future are impacted by what they see and hear. That provides the basis for the next bet.

 

So maybe those who don't see it will never see it and maybe it will matter to them and damage their trading results. It depends; hopefully not.

[koyasan 10]

I suppose for any observation to acquire meaning in the context of trading it has to be shown to make money or at least preserve capital and it has to do so in a consistent and repeatable way. The closing price of any single bar may in itself not be that significant though I do remember reading Linda Bradford Raschke that if a daily close was in the top 25% range of the day then a follow through was statistically more likely the next morning and vice versa for close near the bottom. Tom Demark has looked at the significant of closes in relation to previous bars and would argue that there are patterns which are consistent and reliable enough to make money even down to a 1 min timeframe. A quick example of this would be if the close of the present bar is greater than the close of the fourth bar previous then the price has flipped and the odds favour a change of direction. (in Metastock code C > Ref(C,-4)))

 

If you start from the belief that Technical Analysis has meaning (as opposed to belief in a purely random market) then the use of any phenomenon which can be backtested and shown to have reliable and consistent results has meaning. In this context the H,O,L,C all have the potential be full of meaning...........if as traders we are creative enough to find a way to use them profitably.

[SunTrader 10]

........... Tom Demark has looked at the significant of closes in relation to previous bars and would argue that there are patterns which are consistent and reliable enough to make money even down to a 1 min timeframe. A quick example of this would be if the close of the present bar is greater than the close of the fourth bar previous then the price has flipped and the odds favour a change of direction. (in Metastock code C > Ref(C,-4)))...........

Although he uses closing price relationships in TD Sequential, look at TD Camouflage, as well as many other indicators, to see how he values the next day's opening price with greater importance.

[djohnsonhot 10]

Actually, the OPEN of a bar is far more important to me as a "gap trader." No, of course not, I do not trade gaps exclusively but I use GAP opens, meaning a tick or more opens beyond the previous bar's close (5 or 15min charts) and IF I am inclined to trade in the direction of that gap, it is a strong indication of a continuation pattern.

 

I trade on a 5 min chart primarily and look for "hinges" in price action - - - where one sees a key pivot level broken (not a pivot point, but rather a change in direction, or a turning point leading to a new exhaustion area (a top or bottom of a good range run).

 

I will WAIT for a hinge to BREAK AND HOLD, not just break and that means I will definitely wait for the hold to occur and enter my trade based on my primary entry rules.

[peterjerome 10]

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)?

 

josh, i can explain what i do...i'm not interested in convincing anyone of my being right.

 

i use 10min bars to enter and exit. nothing complicated.

 

when i am looking to exit i'll wait until bar close...often times price is already below my exit, but recovers on close keeping me in a trade that turns profitable.

 

i gotta believe if i'm waiting on bar close, there may be significant number of traders doing the same thing, no?

 

peter

[joshdance 10]

The OP said that the only bar on which the close was important was the daily bar.

 

I often wonder how people can develop such wrong perceptions of market data. But after years I realize that my perceptions also changed and sometimes dramatically as I realize something that, although in front of me all the time, I hadn't perceived.

 

Bar close is important in at least two ways. First it sets a closing price and second it sets the highs and lows for sure ... no more changes.

 

Now, the OP has perceived truth in daily closes. ...

 

...

 

So maybe those who don't see it will never see it and maybe it will matter to them and damage their trading results. It depends; hopefully not.

 

Kiwi, after reading your post, the only thing you say regarding the meaning of the closing price of a bar is that it means the bar is completed (and thus its range is defined and unalterable), and that it "sets the closing price." Well, these are not exactly revelations. Perhaps you can elaborate on why this value is important.

 

You talk about "truth" and "wrong perceptions" ... Traders have created a structure around a market by grouping transactions together into "bars" and then determined many different ways of presenting that data and different ways of defining the completion of a "bar." These are all methods of data presentation, independent of the market itself. Yet, you call this "truth," and you say that not imposing this structure onto the market is a "wrong perception" ... is that about right?

Edited February 15, 2012 by joshdance

[joshdance 10]

when i am looking to exit i'll wait until bar close...often times price is already below my exit, but recovers on close keeping me in a trade that turns profitable.

 

Thanks peter --

Does it also happen sometimes that you take a larger loss, or allow a winning trade to turn into a losing trade instead of closing it, because you held until the close of the bar?

 

i gotta believe if i'm waiting on bar close, there may be significant number of traders doing the same thing, no?

 

Certainly I'm sure there are. Depends on how you might define "significant" ... For the purposes of practicality, I'll assume that everyone in the trading universe starts a ten minute bar on the hour. Every 10 minute bar close will be accompanied by a 1 minute and 5 minute bars closing, though in the middle of your ten minute bar you will have 5 minute bar traders acting on their bar closes. One out of every three ten minute bars will align with a 15 minute bar close and a 30 minute bar close. And so on... So, at 10:20am, you will be seeing a bar complete, while 15 minute and 30 minute bar watchers have another 10 minutes to go, yet you will be on the same closing time as 5 minute bar watchers... except that of course you will be evaluating the close in respect to a whole different set of other values (different open, high, and low).

[BlowFish 10]

It's simply a data sampling issue. It 'means' exactly what it means. The raw data is each and every tick. If you sample that data every 29 ticks, 243 second, 53 contracts or 5.5 points you are holding one variable constant and sampling with respect to that.

 

People choose (or should do) sampling periods to reveal characteristics in the underlying data that suits there trading objectives. The most obvious one is the types of move they are trying to capture.The main characteristics of 'type' are magnitude and length. So for example if you are looking for 2-3 point moves that generally take less than an hour to complete you probably would not use a weekly chart (a weekly sampling) to trigger your entries.

 

Now having said that there are some 'special' considerations. I think the significance of most are being eroded. For example daily bars, the close represents the end of a session however with some instruments trading 24/5 I guess that is less meaningful than it once was. The weekly close probably still has some sort of tangible 'meaning' as markets still close at weekends. 30 minute periods meant something when a lot of people where using market profile (30minute TPOs), probably still do a bit though arguably there are better ways of profiling markets. I also remember a time when I could have sworn that 5 minute closes where 'gamed' by shorter term participants.

 

Anyway short answer is that it is a data sampling thing. A 'doji' on a 10,000 tick chart 'means' price has not managed to maintain any advance or decline within that sample period. A 90minute bar moving above the previous 90 minute bars (sample) high means that price is trading at a higher price than in the whole of the previous sample.

 

Of course attaching special meaning to magic numbers is dubious (imho). A 150 tick chart is likely to be just as effective as a 144 tick chart.

[johnw 10]

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

You talk about "truth" and "wrong perceptions" ... Traders have created a structure around a market by grouping transactions together into "bars" and then determined many different ways of presenting that data and different ways of defining the completion of a "bar." These are all methods of data presentation, independent of the market itself. Yet, you call this "truth," and you say that not imposing this structure onto the market is a "wrong perception" ... is that about right?

 

 

Now you are getting to the hub of the problem JD ..... if the compilation of the source information we are observing is fundamentally flawed then we need to deal with it before we can push on.

 

Kiwi says the intraday bar close is important because it locks in the high/low of the bar and provides a snapshot of the price.

I happen to agree with his statement but the information has absolutely no meaning to me since the bar size is not set by the market.

 

Some of the posts I have read in this most interesting thread remind me of a blindfolded boxer coming out of his corner swinging ... his reasoning being that if he swings enough times, then he is bound to land the odd punch or two and yet he has not stopped to wonder whether his opponent is even in the ring.

 

There is surprisingly little source information available to us from the markets and yet we bring with us from the outside world an overwhelming desire to create more of it.

This in turn creates an inverted pyramid .... not unlike balancing an Elephant on a pinhead ... it can possibly be done I suppose, but why would you bother, the Elephant is going to fall off.

 

The other big surprise is just how little information we need to trade profitably.

 

And so I would suggest that we make ourselves aware of the quality, source volume (amount) and accuracy of our information and it's presentation before pushing on.

 

One other thing while I am on a roll.

 

The law of cause and effect.

As an example ...

Some of us may discover a pattern that emerges from the bars that signal a reversal and so we trade it with 65% accuracy over a sample of say 34 trades.

Because we are not paying attention ( looking but not seeing) we are oblivious to the fact that 65% of our signals occur at supply/demand zones whilst the other 35% land between the zones.

We are in fact trading the 'effect' and not the 'cause' ....imagine our results when we start paying attention.

 

And I will leave you with one last thought.

 

There is a popular belief running around TL that we can have a high win/loss ratio of trades or we can have a high points won/points lost ratio ... but we cannot have both.

 

This is crap, pure crap along with some of the crappy theories concerning the need and placement of stops .... obviously some people do not understand the importance on momentum because they cannot see it correctly on their screen.

[BlueHorseshoe 10]

 

Of course attaching special meaning to magic numbers is dubious (imho). A 150 tick chart is likely to be just as effective as a 144 tick chart.

 

Are you sure, BlowFish? I'm sure I once saw a John Carter vid where he said that it is a magical number . . .

 

On a more serious note: one thing that jumps out reading back through this thread is that everyone keeps referring to the same time frames: 1, 5, 10, 15, 30, 60 mins. Now given that most traders lose money, and assuming we set aside preconceptions about self-fulfilling prophecies etc, then wouldn't it make more sense to employ reference timeframes that are not commonly used by other traders?

 

In other words, why haven't you configured your charts for 4, 7, 18, 43 minute bars? Or, for that matter, 144 minute bars!

 

Hope that's thought provoking (ps I lifted this idea from an old Joe Krutsinger book where he discusses 180 min bars).

Edited February 15, 2012 by BlueHorseshoe

[johnw 10]

Are you sure, BlowFish? I'm sure I once saw a John Carter vid where he said that it is a magical number . . .

 

On a more serious note: one thing that jumps out reading back through this thread is that everyone keeps referring to the same time frames: 1, 5, 10, 15, 30, 60 mins. Now given that most traders lose money, and assuming we set aside preconceptions about self-fulfilling prophecies etc, then wouldn't it make more sense to employ reference timeframes that are not commonly used by other traders?

 

In other words, why haven't you configured your charts for 4, 7, 18, 43 minute bars? Or, for that matter, 144 minute bars!

 

Hope that's thought provoking (ps I lifted this idea from an old Joe Krutsinger book where he discusses 180 min bars).

 

gm BH,

 

Many years ago I switched to a 280 second chart to give me an edge over the 5 minute guys....

My results after this bold move were as abysmal as before, but it did encourage me to find out what slice of the market was controlled by the retail Guys..... something less than 15% as I recall and I imagine that has diminished since then.

[SunTrader 10]

...

And I will leave you with one last thought.

 

There is a popular belief running around TL that we can have a high win/loss ratio of trades or we can have a high points won/points lost ratio ... but we cannot have both.

 

This is crap, pure crap along with some of the crappy theories concerning the need and placement of stops ....

 

One too many thoughts IMO but rather than sidetrack this discussion I will leave my thoughts on this for another place, another time.

[SunTrader 10]

........

In other words, why haven't you configured your charts for 4, 7, 18, 43 minute bars? Or, for that matter, 144 minute bars!......

Been there, done that.

 

And in the end didn't amount to much difference.

[fxdummie 10]

Kiwi, after reading your post, the only thing you say regarding the meaning of the closing price of a bar is that it means the bar is completed (and thus its range is defined and unalterable), and that it "sets the closing price." Well, these are not exactly revelations. Perhaps you can elaborate on why this value is important.

 

You talk about "truth" and "wrong perceptions" ... Traders have created a structure around a market by grouping transactions together into "bars" and then determined many different ways of presenting that data and different ways of defining the completion of a "bar." These are all methods of data presentation, independent of the market itself. Yet, you call this "truth," and you say that not imposing this structure onto the market is a "wrong perception" ... is that about right?

 

Joshdance, as far as I see you are trying to say that intraday bar closes don’t matter.

I say any bar close don’t matter if it is not in relation to any other bar close or to the market structure. Moreover, even my last statement doesn’t matter if it can’t be used to make money. After all, bars, indicators and so on are made to help us make sense of the market direction so we gain an edge.

 

On any time, tick, volume chart, - market flows in waves of supply (down) and demand (up). In these waves the individual bars are in relation to each other. The bar low/high shows what were the extremes of supply and demand for the bar period. The close shows where the price have settled for the chosen bar period. None of this will matter if it doesn’t make sense to me and/or can’t be used to make a decision on a trade direction.

 

Trading is a probability game. Me as a master of my world need to make sense of the big black nothing out there called market. I choose my tools and start exploring.

[TimRacette 11]

Tim.i think i'm gonna have to buy you a drink sometime 'cos it seems i'm always picking on you,candles,fibs;)

 

But i got a problem with the way this actually works in real time for you..or anybody.I'm gonna make my tues trading moves based off of mon ohlc which are printed history and not going to change.I got hours to work it out...wouldn't you agree?.

 

Now,you say you need to see an intraday bar close before you can interpret it..Yes? so i reckon you got a micro second to make a move before the next bar starts forming and you cannot interpret that one either until it closes:confused:

Help me out here

 

I think you're misinterpreting me. If I'm looking at a 15-min candle, I don't place any weight on the formation until the candle is closed. If it's 13-minutes in and is a big body bearish candle it could rally and close as a hammer, see what I'm saying.

[johnw 10]

One too many thoughts IMO but rather than sidetrack this discussion I will leave my thoughts on this for another place, another time.

 

It is all to do with waiting for momentum to washout before taking a position.

If you are trading ES from say a 5 minute chart you really don't have a chance of seeing it.

[humble 10]

It is all to do with waiting for momentum to washout before taking a position.

If you are trading ES from say a 5 minute chart you really don't have a chance of seeing it.

 

Hi John,

 

How do you go about "seeing" this washout of momentum?