NexusFi: Find Your Edge


Home Menu

 





The Close of a Bar or Candle is Meaningless


Discussion in Traders Hideout

Updated
      Top Posters
    1. looks_one josh with 13 posts (68 thanks)
    2. looks_two Palais Brongniart with 5 posts (14 thanks)
    3. looks_3 bobwest with 4 posts (31 thanks)
    4. looks_4 Botts with 3 posts (16 thanks)
      Best Posters
    1. looks_one Pa Dax with 9 thanks per post
    2. looks_two bobwest with 7.8 thanks per post
    3. looks_3 bfreis with 6 thanks per post
    4. looks_4 josh with 5.2 thanks per post
    1. trending_up 14,401 views
    2. thumb_up 260 thanks given
    3. group 20 followers
    1. forum 52 posts
    2. attach_file 8 attachments




 
Search this Thread

The Close of a Bar or Candle is Meaningless

  #21 (permalink)
 
Rrrracer's Avatar
 Rrrracer 
On the road
Webinar Host
Trading Nomad
 
Experience: Intermediate
Platform: TradingView
Broker: Oanda
Trading: FX
Posts: 2,512 since Feb 2017
Thanks Given: 17,582
Thanks Received: 9,752

Thank you @Pa Dax and @josh both for putting down in words what I was thinking, but much more eloquently than I was likely to muster lol.

From a personal perspective, I can and will give decent weight to how and when a bar is formed for all the reasons mentioned here, but more than anything I pay attention to how price reacts at a level of interest... and if I see what I'm looking for, I will pull the trigger regardless of where we are in the process of said bar being generated. Seems no matter the methodology, everything boils down to a level and whether it holds or folds.

Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Exit Strategy
NinjaTrader
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
Deepmoney LLM
Elite Quantitative GenAI/LLM
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
59 thanks
Funded Trader platforms
36 thanks
NexusFi site changelog and issues/problem reporting
25 thanks
GFIs1 1 DAX trade per day journal
19 thanks
The Program
18 thanks
  #22 (permalink)
 
Blue Eagle's Avatar
 Blue Eagle 
vancouver British Columbia/Canada
Legendary Market Wizard
 
Experience: Intermediate
Platform: Ninja Trader
Trading: CL
Frequency: Daily
Duration: Minutes
Posts: 1,817 since Jan 2013
Thanks Given: 7,814
Thanks Received: 7,861


bfreis View Post
For example, one of the charts I like to look at when trading the ES is a delta-volume chart (ie, new candle when the number of buys exceeds the sells, or vice versa, by a certain amount). I may use 250dv, 500dv, 750dv, 1000dv, or anything, really. The numerical setting there isn't important - what matters is that, in a given market context, I want to see useful data while eliminating as much of the noise as possible. On days with heavier activity, I may choose higher numerical settings (750dv, 1000dv, or really any arbitrary number); lighter activity, lower number. What I want is to keep the "rhythm" of my chart approximately the same, regardless of the characteristics of the specific day.

Cheers!

A bar type I haven't seen?? With all my early years of searching for the grail I thought i'd seen them all. I have actually thought of something like this bar type and searched but found nothing...and I haven't gotten so far as to code my own stuff...yet. Right now I use smaller time frame bars and usually "scrunch" them up so you almost can't see individual bars...just the flow, but your description has sparked my interest. Where did you find this? and do you know what platforms it is available for? I use Ninja 7 still.
Appreciate any info,
Thanks, Craig

Until you make the Unconscious conscious, it will direct your life and you will call it Fate...
Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #23 (permalink)
 bfreis 
Redwood City, CA
 
Experience: Advanced
Platform: SierraChart and TWS
Broker: Interactive Brokers
Trading: ES, CL, GC, 6E, ZN/ZB, FGBL, and options
Posts: 12 since Aug 2017
Thanks Given: 3
Thanks Received: 31



Blue Eagle View Post
Where did you find this? and do you know what platforms it is available for? I use Ninja 7 still.
Appreciate any info,
Thanks, Craig

Hey Craig,

I assume you're talking about the Delta Volume bars, right?

I use them on Sierra Chart, it's a built-in feature. You can select it by typing a number, followed by "dv", and Enter. Like 750dv [enter].

I'm not sure about which other platforms support that.

Cheers!

Reply With Quote
  #24 (permalink)
 
Rrrracer's Avatar
 Rrrracer 
On the road
Webinar Host
Trading Nomad
 
Experience: Intermediate
Platform: TradingView
Broker: Oanda
Trading: FX
Posts: 2,512 since Feb 2017
Thanks Given: 17,582
Thanks Received: 9,752


bfreis View Post
Hey Craig,

I assume you're talking about the Delta Volume bars, right?

I use them on Sierra Chart, it's a built-in feature. You can select it by typing a number, followed by "dv", and Enter. Like 750dv [enter].

I'm not sure about which other platforms support that.

Cheers!

Cool, ya learn something new every day. Thanks for this and your previous, excellent post.

Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #25 (permalink)
 
Pa Dax's Avatar
 Pa Dax 
Netherlands
Price Action Scientist
 
Experience: Advanced
Platform: NinjaTrader, IB TWS
Broker: InteractiveBrokers, CQG
Trading: ES
Posts: 1,236 since Oct 2017
Thanks Given: 2,006
Thanks Received: 6,318


josh View Post
Maybe your strategy even says, "after the market trades up and back down, wait for a 5 minute stall before getting short." Fine -- but why must that 5 minute stall happen at a 15-minute boundary? Time is very important, and I often get out of trades or into trades based on it. But if the trade is there, why on earth wait until an arbitrary amount of time (or ticks, or range, ...) has passed?

Cause, if you would be mimicking those traders, the exact close of that bar defines where those traders define their risk and thus their profit targets. Had you entered before either higher or lower you are out of sync with them.
I agree with you that mathematically if you define a stop and a target you can enter at any point in time if current price gives you a favorable risk/reward/probability skew but we're talking here about why traders are looking at the close of a bar and reason is simply because that's what everybody else is doing as well. There well always be a sperm cell swimming the other way but the easiest chance of success is to follow the herd.

Visit my NexusFi Trade Journal Reply With Quote
  #26 (permalink)
 
Botts's Avatar
 Botts 
Penetanguishene, Ontario, Canada
 
Experience: None
Platform: NinjaTrader-8
Broker: NinjaTrader Brokerage, Continuum
Trading: ZB, MES, NQ, YM
Posts: 924 since Jun 2011
Thanks Given: 4,019
Thanks Received: 3,605

@josh, I think you've made a lot of good points and many of the responses that have been written in reply to your original question have been thought provoking and offer some insight into how the "market" represents all of our different views, by facilitating trades to allow us all to express those different views.

One view I have to offer is shown here in one of the first indicators I built when I started trading futures.

It simply plots a rectangle where a new bar has gapped up or down from the prior bar's Close.

It is my belief that the activity that took place to form that Gap is a reflection of the fact that traders were willing to "jump" into that trade (for whatever reason) and their zeal caused the next bar to open either higher or lower than the previous bar's close.

In my opinion the Gaps show (me) areas where Supply or Demand has been present and the market has confirmed my suspicion by moving in the direction of those gaps until the traders that "pushed" the move exhausted their initial desire.

One thing to note here is the "Bar Gap" indicator I use does not work well on Volume or Tick charts because there are very few Gaps formed on those charts (mostly limited to a Gap on the Open from the prior Session Close) due to the way the bars are formed.

I do like the way they work on Time based charts though.

Food for thought,
Trade well.

R.I.P. John Bottomley (Botts), 1956-2022.
Please visit this thread for more information.
Attached Thumbnails
Click image for larger version

Name:	ES 10 Minute Bar Gaps 2019-10-28_6-59-18.png
Views:	337
Size:	61.5 KB
ID:	278399   Click image for larger version

Name:	ES 5 minute Bar Gaps 2019-10-28_7-08-37.png
Views:	324
Size:	61.6 KB
ID:	278402   Click image for larger version

Name:	ES 10000 Volume Bar Gaps 2019-10-28_7-05-12.png
Views:	305
Size:	45.7 KB
ID:	278405  
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
  #27 (permalink)
 
josh's Avatar
 josh 
Georgia, US
Legendary Market Wizard
 
Experience: None
Platform: SC
Broker: Denali+Rithmic
Trading: ES, NQ, YM
Posts: 6,216 since Jan 2011
Thanks Given: 6,752
Thanks Received: 18,136


TopGunNote View Post
It is my belief that the activity that took place to form that Gap is a reflection of the fact that traders were willing to "jump" into that trade (for whatever reason) and their zeal caused the next bar to open either higher or lower than the previous bar's close.

In my opinion the Gaps show (me) areas where Supply or Demand has been present and the market has confirmed my suspicion by moving in the direction of those gaps until the traders that "pushed" the move exhausted their initial desire.

One thing to note here is the "Bar Gap" indicator I use does not work well on Volume or Tick charts because there are very few Gaps formed on those charts (mostly limited to a Gap on the Open from the prior Session Close) due to the way the bars are formed.

I do like the way they work on Time based charts though.

What do we really mean when we say "gap"? We mean that there is so little interest to sell (in a gap up) or buy (in a gap down) that the market ("market" means the order book, specifically the BBO here) moves without much actual trade happening.

"Gaps" do exist intraday -- thinly-traded equities, orange juice futures, etc. In a market as thick as the one your charts show, however, it's very rare, even in the most volatile of news releases, to see a market trade price X and then X+2, without seeing price X+1 trade.

An opening bar print compared to a closing bar print on ES is in all but the most rare of circumstances going to be either equal, less than by 1, or greater than by 1. Any trader of any size can create that opening bar print. If the market is bid at the closing print, then a buy at the market will create an opening print higher, and a sell at the market will create an equal or lower opening print. Vice versa if the market is offered at the closing print.

So, on a given day with more positive "delta" (not in the options sense, in the volume @ bid/offer sense), you are slightly more likely to see your bars "gap up." Vice versa for a day with negative delta. So, in a way, you a probabilistically more likely to see these gaps correlate with the market...maybe.

But you are still using two transactions that occur sequentially in time, and the placement of these transactions along the partitioning of bars (5 minutes, 15 minutes, ...) is purely random. The sequence of "gaps up" and "gaps down" can be very interesting, and in fact this is exactly what a delta measurement does -- it gauges demand based on trades transacted at the bid or offer. This is very helpful. But to negate all but two sequential transactions every 5 minutes is ... well, like this: Imagine a long line of people of varying heights. Take two people out of every 300 or so and compare their heights. Do this every 5 minutes. After a few hours, you have some samples. How well do you think you have done in predicting whether the height of the people in the line is increasing or decreasing over time? Ignoring thousands of data points and sampling two that are related in no way is not a solid basis for determining much of anything.

I commend you for thinking of the market on this level, and as I've mentioned above, it's basically a tiny sample of what delta tick/volume is all about, which is very useful. But we must be careful that the things we choose to look at in fact make sense. We must always ask: is this a sound and logical idea?

Your Sunday gap, and equity gaps on daily bars, mean a LOT. This is because, as in my original post, these periods where trade is not possible are true delineations. By the close of business, the business better be done, or it must wait for the next trading day. In this situation, where the market closes means something, for sure!

Started this thread Reply With Quote
  #28 (permalink)
Nitbean
Lincoln, NE
 
Posts: 12 since Oct 2019
Thanks Given: 4
Thanks Received: 13


josh View Post
When I took my first trade 12 years ago, all I knew were charts, and the candles or bars that filled them. I quickly learned, as you all have done, to see the "story" associated with a series of candles/bars. I followed a guy who uses "price action trading" and who looks at bar-by-bar analysis, and it seemed to make sense to my 6-month-old trading brain.

However, as you begin to understand even the basics of market microstructure (bids, offers, etc.), you should begin to see the market as buyers and sellers who are matched with each other to produce a series of transactions. For a very active market, with tens or hundreds of thousands of transactions per day, we would be overwhelmed if we viewed each of these transactions in isolation. So, for the sake of our ability to grasp the bigger picture, we aggregate these transactions.

The most straightforward way to aggregate transactions is by time. You group all transactions that occur within a particular time interval (say, 5 minutes), and you choose to display statistics about them. Among those statistics could be the average, max, min, first, last, median, variance, and the list goes on. Your standard candle/bar chart chooses to show 4 pieces of data: the price that traded first (the open), the price that traded last (the close), the max traded price (the high), and the min traded price (the low). This is your OHLC candle/bar. So, over a given time period, you know the very first price that traded, the very last one, the highest one, and the lowest one. If you think about it, that's not much data. Out of potentially thousands of transactions during that time window, you know 4 of them.

Now let's talk about the closing price. Let's use a 5 minute bar, since that seems to be the favorite of most. When you view the market as a series of transactions, the close of a 5 minute bar is simply the last transaction that took place before 9:35, 9:40, 9:45, ... 16:00. I ask the question: what is special about those times? Is 10:40 meaningful, in some way? 14:15? The strategy that says "the bar must close below price X" places importance on a particular time of day. What if you begin your 5-minute chart at 9:31 instead of 9:30? All of a sudden, 9:36, 9:41, 9:46, ... become important, and the closing price at 9:35, 9:40, and 9:45 are completely hidden from your view, lost in the aggregation of the bar.

A 5-minute "reversal bar" that closes at 10:45 may be a "doji" on a 15 minute chart. When the period of aggregation is arbitrary (1 minute, 5 minutes, 15 minutes, 3 minutes...), the story that those aggregations tell is also arbitrary. What happens beginning at 10:45 is the same experience viewed from any angle, regardless of whether you have aggregated data from 10:30 to 10:45 over 3, 5, or 15 minutes.

It's arguably worse if you use a non-time-based bar to aggregate transactions. "The 233 tick candle must close lower to go short" is perhaps the height of what I can only term superstition. What is so special about the 233rd transaction that we must designate it as the close of a bar, and then place some meaning on it? "I'm going to wait for this 5 minute bar to close before I enter" may be even worse -- so, at 9:49 it's not a buy, but at 9:50, at the same price, it is? There's no logic there. Perhaps it all comes down to seeking confirmation--but confirmation comes from many factors, of which time is probably not the most important, particularly not an arbitrary points during the day.

The exception I make are daily bars, particularly in equities, since NYSE equity trading is closed from 20:00 to 4:00, and since the day is so well defined to be liquid from 9:30 to 16:00. Settlement of futures occurs at a particular time, accounts are marked to market, gains and losses are calculated, and margin calls are made. Trading is actually closed, for example, in the ES, from 17:00 to 18:00, and margin calls occur before this. However, since other markets may be open, even the daily close is not as important as the weekly close, which happens from US afternoon until Australia/Japan morning the following Monday--a true 48 hour break from any activity.

So, what's a better way to look at the market? Well, that's a whole other subject. But once you eliminate ideas that have no sound basis in logic, you are left with fewer to choose from, which is a good thing! Disagree, agree? Talk about it!

This all makes sense, but the more I think about it, almost every system of trading is like this. Unless you are trading fundamentals of the underlying asset (which is impossible for a retail trader), you’re looking at a chart that shows the price of a derivative, and using that chart alone is in and of itself sort of superstitious. I don’t think that means you can’t obtain an edge, though.

Reply With Quote
Thanked by:
  #29 (permalink)
 
josh's Avatar
 josh 
Georgia, US
Legendary Market Wizard
 
Experience: None
Platform: SC
Broker: Denali+Rithmic
Trading: ES, NQ, YM
Posts: 6,216 since Jan 2011
Thanks Given: 6,752
Thanks Received: 18,136


Nitbean View Post
This all makes sense, but the more I think about it, almost every system of trading is like this. Unless you are trading fundamentals of the underlying asset (which is impossible for a retail trader), you’re looking at a chart that shows the price of a derivative, and using that chart alone is in and of itself sort of superstitious. I don’t think that means you can’t obtain an edge, though.

Thanks for your post -- two things come to mind here:

1) It's definitely not impossible for retail traders to have a fundamental-first approach. It's true that they don't have the same level of access to information that large institutions do. But they also don't have access to the same level of technical-based information that an HFT firm has, yet they trade technically, primarily. I think the choice of technical vs fundamental for retail traders comes down to the motivation most of them have for trading: they want to get rich quick. Fundamentals take more time, more intelligence, and more work, IMHO. It takes a few days or weeks to get comfortable with trendlines, candlesticks, and RSI. It takes months and years to understand the holistic picture of the financial landscape, and retail traders just aren't interested in that.

2) If you watch some of the webinars Peter Davies does, he often mentions that prop firms which he has experience being around are not chart-focused. Yes, they use charts. But that's not how they really figure things out. In my own time with a prop firm, all the traders I worked with used charts, but they were more in tune with what moves markets, using the chart as more of a context to make a decision, and then ignoring it when it ceases to become useful.

Started this thread Reply With Quote
Thanked by:
  #30 (permalink)
Nitbean
Lincoln, NE
 
Posts: 12 since Oct 2019
Thanks Given: 4
Thanks Received: 13



josh View Post
Thanks for your post -- two things come to mind here:

1) It's definitely not impossible for retail traders to have a fundamental-first approach. It's true that they don't have the same level of access to information that large institutions do. But they also don't have access to the same level of technical-based information that an HFT firm has, yet they trade technically, primarily. I think the choice of technical vs fundamental for retail traders comes down to the motivation most of them have for trading: they want to get rich quick. Fundamentals take more time, more intelligence, and more work, IMHO. It takes a few days or weeks to get comfortable with trendlines, candlesticks, and RSI. It takes months and years to understand the holistic picture of the financial landscape, and retail traders just aren't interested in that.

2) If you watch some of the webinars Peter Davies does, he often mentions that prop firms which he has experience being around are not chart-focused. Yes, they use charts. But that's not how they really figure things out. In my own time with a prop firm, all the traders I worked with used charts, but they were more in tune with what moves markets, using the chart as more of a context to make a decision, and then ignoring it when it ceases to become useful.

That’s good to hear. If I’m being honest, TA is interesting and makes a lot of sense when studied “in theory” but when I try to apply it to actual trading I feel lost. I know the technical advantages that HFT firms had, but I always assumed (perhaps erroneously) that the difference in quality of the technical data was far less than the difference in quality of fundamental data.

If you had any good resources for learning and creating a strategy that focuses more on fundamentals, please share. No one I’ve asked (not on this forum, but others like it) has ever thought it’s even possible.

Reply With Quote
Thanked by:




Last Updated on June 5, 2020


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts