How I Treat Candle Opens/Closes and Their Significance
Updated
In my view, there is nothing fundamentally important about a candle closing above or below a certain price. Yet, I still regularly use a candle close or open to describe a trading idea, and for good reason.
To start with, most people clearly understand what I mean if I say something like 'If the weekly candle closes above 8100...' but the significance of a weekly candle close above 8100 has nothing or very little to do with the fact that a market traded above 8100 at 00:00 UTC on a Monday. The distinction I use for price action with regards to candle closes is nothing more than the inclination for a market to trade near a certain price range and not instantly get rejected.. In our example above, it is very different if price has been trading at 7600 on Sunday at 10 p.m. and proceeds to climb to 8100 by 00:00 a.m. on Monday, than if price has been trading at 7900-8100 for a whole weekend and closes above 8100.
There is a lot of value in understanding how a candle opened or closed and to not assume all candles are created equally if their OHLC numbers are identical. This is why a trading strategy with multiple time frames is a must when using bars/candles to read price action.
Wish I had more time to go over a couple of examples, but the concept is very simple and I hope all of you understand the gist of the idea behind it.
To start with, most people clearly understand what I mean if I say something like 'If the weekly candle closes above 8100...' but the significance of a weekly candle close above 8100 has nothing or very little to do with the fact that a market traded above 8100 at 00:00 UTC on a Monday. The distinction I use for price action with regards to candle closes is nothing more than the inclination for a market to trade near a certain price range and not instantly get rejected.. In our example above, it is very different if price has been trading at 7600 on Sunday at 10 p.m. and proceeds to climb to 8100 by 00:00 a.m. on Monday, than if price has been trading at 7900-8100 for a whole weekend and closes above 8100.
There is a lot of value in understanding how a candle opened or closed and to not assume all candles are created equally if their OHLC numbers are identical. This is why a trading strategy with multiple time frames is a must when using bars/candles to read price action.
Wish I had more time to go over a couple of examples, but the concept is very simple and I hope all of you understand the gist of the idea behind it.
Comment
Here is an exercise I used to do to practice price action:Go to a higher time frame (weekly or monthly), analyze the candles and try to predict how price moved. Did it open go down to the bottom wick first or did it go up to the top wick first? Use context and surrounding candles to aid your analysis.
Then, go to a lower time frame and actually see how price moved. Eventually, you will get much better at understanding price action and how price behaves.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.