Improve Your Odds for Trading on the Close

When the market closes, there is never a guarantee it will open higher or lower the next session. Just take a look at the volatile action we have been witnessing as of late. If one could predict that with any accuracy, trading would be a whole lot easier. But there is something I tell my students to look for on a consistent basis that I have found helps me tremendously, especially if I am looking for a directional opportunity. That little tip is to is to see how the stock closes on the day.

If I am looking for a bullish or bearish directional trade, this is vitally important. For example, if I am seeing a potential bullish setup, I like to enter the bullish trade closer to the end of the session if the stock looks like it will close toward the high of the day. Naturally I want the stock to continue to move in positive territory after the bullish close like the recent example below involving Goldman Sachs Group Inc. (GS). Notice the strong bullish close over some resistance and then a continued bullish follow-through the next several sessions.

Many times, you will see the stock continue to move higher, particularly if it is breaking resistance or triggering a bullish reversal. For a bearish potential trade, look for a bearish close with the stock closing near the low and down on the session. I consider entering a bearish trade toward the close of the session like the peloton Interactive Inc. (PTON) example below.

The stock did not break the potential support level by much, but it did close essentially at the low of the day and move lower over several sessions.

There is no guarantee when a stock closes bullish or bearish that it will continue in that fashion the next session. Unfortunately, as swing traders, we do not have that certainty. There is market risk that can move stocks too. But being patient and waiting to enter a position when there are more odds on your side, can improve your results.

John Kmiecik, Market Taker Mentoring

Trader Education