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The Close of a Bar or Candle is Meaningless


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The Close of a Bar or Candle is Meaningless

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  #1 (permalink)
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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!

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time is relevant at certain intervals.
the daily close is very important for obvious reasons.
the 5min close is important in that many traders/algo's seem to execute on the open of time intervals. simply pull up a 5-sec chart and you'll see volume spike up at a lot of 5min intervals.

Lately i've been trading with a timeframe that is around 1-2 minutes, and use only H/L bars for a clearer picture. But you do lose some context. With closes, you are able to see rejections quicker than if you, say, took entries at a break of a bar high/low. When you see a wick come down off a key area, it doesn't matter what interval you use, because regardless there was some sort of pushback in price - something that is important to see.

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I totally agree with you....if one uses candles to trade the way you have described.

I do believe that they have a place though. Not everyone has the ability to read a DOM and time and sales for example and figure out where buyers and sellers are meeting and one taking over from the other one. For some people who are more visual interpreters a picture makes a lot more sense. Just from the attached screenshot (CL for today, 800T) you can for example see where selling took over from buying and vice versa (also popularly known as support and resistance). 800T is arbitrary and was not chosen to reflect any sort of magic number. I agree the market doesn't care about these magic time frames or ticks or whatever. It is more about what makes the picture make sense for you.

This gives the opportunity to people who does not get the ladder type trading to also participate in trading. We can debate how effective it is etc. but the fact is that it can be done fairly profitable if practiced enough and getting emotional state in check etc. etc. Just look around this forum and we will find many people who trade this way and make a fairly good income from it.

We are unfortunately in an industry where unscrupulous people have seen lots of opportunities to make a quick buck from people who are trying to learn to trade. A lot of these people have made trading in general (not just candles) into something that it was never intended to be.

Anyway, that is my 0.02c worth

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I'm right there with you Josh. Where a candle closes on time-frames other than the daily and weekly, seem to have very little predictive value.

I hope you continue this discussion and share more insight!

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josh View Post
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.

You're going to have some difficulty convincing a number of people about this. (I do agree with you, by the way.)

There are a number of successful traders who think that, for example, the close of a 5-minute bar is very important, and that the choice of 5 minutes (or some multiple of it) is also very important. If a trader is profitable and has that belief, it is hard to convince him to change it. It appears to him that his success proves the correctness of his approach... and in a sense it does, of course, but it doesn't necessarily prove that nothing else can also be "correct" in the sense of "can be profitable," and it doesn't prove that his particular bar type is "the only right one" or that nothing else works.

But this also does not invalidate his using that type of bar in that way, if it works for him.

My view is it doesn't matter, you're just sampling the trading activity in particular span of time (or number of trades or contracts or range of price change or whatever), and that one sampling is as good as another. But I don't insist on it.

And whatever works, does work, after all.

So I do agree, but I don't think you'll make a great amount of difference for anyone who already has their mind set one way or the other.

But I like Cervantes, and tilting at windmills sometimes too.

Bob.

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I agree with what you are saying.

I lot of people do it. The chart below is the average volume from each second in the day from Sept-Oct 2015 - includes ON data. There is an average of 40% more volume that is transacted in the opening second of a min - i.e so trades initiated based on the close of a bar.

I use volume bars, with automated entries based off the SC spreadsheet. The backtests are based on closed bars - at which point the 'features' are hard coded. There is no practical way to test and trade 'intra bar' (at least in Excel), as the triggering feature may change back and forth multiple times during the bar. The amount of data required to test for that would cripple Excel.

I'd suggest for the majority of systematic traders, closed bars is the only practical method.



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While I think you do have a very strong and compelling point, and I fully agree with, regarding the "superstition" aspect that's behind why many traders use many types of charts, there are some things I thought I could share a slightly different perspective. By the way, this is quite an interesting topic!

So, just enumerating some points to clearly separate them, as they are mainly independent.

First, one simply cannot mentally process the huge amount of raw data generated by the market - we need to somehow compress it. Maybe by summarizing, maybe by sampling. A candlestick is nothing more than one way to summarize the data. A line chart is nothing more than a way to sample the data.

Second, it's a reasonable assumption that people in general feel comfortable displaying timeseries data in graphs with time on the horizontal axis. That's what we see almost every day in news since we start being exposed to newspapers as kids. So why fight it? In particular, people are used to seeing data where the time axis is uniform, that is, each segment of the same size represents the same time interval.


Based on this 2 initial points, it's pretty much a logical conclusion that displaying market data as either candles/bars (summary) or lines (sampling) on regular time intervals (5min, or whatever it is) just makes sense - there's less cognitive load, so the brain has more resources left to actually process the summarized/sampled data and make trading decisions.


Third, there actually is something special about certain intervals. You said you see why the daily interval is important. But many others are important, too. Not only algorithms may be looking at those regular intervals, but a lot of information is actually generated or published at the boundaries of those intervals. For example, many reports are released at specific intervals, or at specific hours. In some markets, some kind of average of trades that occur during certain intervals are of extreme significance as they define settlement prices that will impact cash flows and options exercise. The activity around these regular events makes certain intervals particularly importants!


Fourth, the fact that the same value at an instant may represent different things at different time intervals (ie, your reversal bar vs doji example) doesn't invalidate those (possibly conflicting!) analyses. We simply can't know what exactly is driving the market at any given time; but if you're able to tell yourself a plausible, convincing story that accounts for the data you're seeing, it may be enough to justify entries and/or exits which, with proper risk management, can become a profitable system. Also, if you look at different summarizations of the data (eg, a 1 min chart plus a 30 min chart, or maybe a volume chart, or whatever), conflicting analyses may be an indication of weaker entries/exits, while if they agree then it might be an indication of stronger entries/exits.

Fifth, and last, but not least, regarding these odd choices of things like 233-tick, or a 750 delta-volume, or a 12-4 range reversal, or whatever weird method to define the end of the current aggregation and the start of the next, for the summarization process, I don't see it as "magical numbers", but simply values/settings that allow me to see information with a sufficient amount of details, while eliminating as much noise as possible. 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!

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Is one bar type, or the close of one bar type, important or necessary for trading? (A slight rewording of the original question.)

I didn't think initially that this would be such a great topic for discussion, but already I've been proven wrong. These responses are very interesting, and are somewhat nuanced as well.

Let me toss in one additional idea. (And I am not saying that anyone who does or thinks differently from me is wrong.)

If a particular bar type or bar time/tick/volume/range/whatever setting were the only "correct" one, then nothing else would work. But many traders use other types and settings of bars, sometimes very unusual ones too. One very interesting guy ( @lancelottrader in his "The Crude Dude Oil Trading System thread: ) uses mainly a line-only 2-tick range chart (!), plus a few others for context. He does well with this, in CL and NQ, two very fast markets. There is no open, no close, and even no bar on these charts, just a rapidly-moving line. (His videos are interesting. I would never try it, though.)

You can certainly make the argument that a particular chart/bar type is watched and acted on by many or most traders, computer algos, or whatever, and this may or may not be the case. (How would anyone know?) I am sure that a lot of trading decisions are made on the basis of some bar closing, just because using a close is a convenient thing to do.

But, for example, I recently moved from ES to YM. I had long used volume bars on ES, and I had settled into a round-number for my bar size (it was based on 6000 contracts, I believe), and then I scaled up and down by just dividing the 6000 by 2 or 3 or something.... I don't exactly remember, and I don't think it's important. As an aside, a lot of volume-bar traders use something like 2,000 for ES, so there is probably some confluence of bar sizes here, but also there is a simple appeal to numbers ending in "000" .

To transition to YM, I figured the average volume in ES and in YM, calculated the percentage YM was of ES, divided my ES chart numbers by that percentage, adjusted the number so it would end in a convenient number of zeros, checked the resulting YM volume chart compared to my ES charts, fiddled with the numbers until the charts kind of looked the same most of the time, and arrived at a roughly equivalent volume bar number (remember the ES number was fairly arbitrary in the first place.) I then subdivided down by factors of 2 until I arrived at my usual trading chart, which is 188 volume bars (It's actually 187.5, rounded up.)

How many traders in the world are using 188 contract-bars on YM? Probably some, because the process of getting there was not totally arbitrary, but certainly not many.

Now, I am not a great trader, but I am a decent reader of charts (which is not really that useful in trading, as every trader eventually finds out), and the charts make the same kind of sense and the same things work. Trendlines, MA's, chart patterns, measured moves, and on and on, all that stuff works the same exact way. I even use candlesticks the same way, It all works the same. (Well, until I start trading, and then the nut in my head starts making the usual dumb moves, but I/he was making those same moves on a 5-minute chart too.)

I think this argues well for the "fractal" hypothesis of the market (which is that market movements can be subdivided or expanded and they will show the same patterns), although it doesn't necessarily "prove" it either. It's just consistent with it. My hypothesis is more radical: I think you can slice up market movements all sorts of ways, and they will still show the same patterns. This isn't proven by any of this, either, but it is consistent with it.

The hypothesis that some some periods/types of price representation are specially good is also argued for, persuasively for many traders, by the fact that trading with them can be profitably done. But this also doesn't necessarily "prove" it. It's just consistent with it.

Perhaps there is more than one workable picture of reality?

My bottom line is only that when something works (which has a very simple meaning: it makes you money), then feel free to use it. Why not?

Bob.

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bobwest View Post
I didn't think initially that this would be such a great topic for discussion, but already I've been proven wrong. These responses are very interesting, and are somewhat nuanced as well.

Let me toss in one additional idea. (And I am not saying that anyone who does or thinks differently from me is wrong.)

If a particular bar type or bar time/tick/volume/range/whatever setting were the only "correct" one, then nothing else would work. But many traders use other types and settings of bars, sometimes very unusual ones too. One very interesting guy ( @lancelottrader in his "The Crude Dude Oil Trading System thread) uses mainly a line-only 2-tick range chart (!), plus a few others for context. He does well with this, in CL and NQ, two very fast markets. There is no open, no close, and even no bar on these charts, just a rapidly-moving line. (His videos are interesting. I would never try it, though.)

You can certainly make the argument that a particular chart/bar type is watched and acted on by many or most traders, computer algos, or whatever, and this may or may not be the case. (How would anyone know?) I am sure that a lot of trading decisions are made on the basis of some bar closing, just because using a close is a convenient thing to do.

But, for example, I recently moved from ES to YM. I had long used volume bars on ES, and I had settled into a round-number for my bar size (it was based on 6000 contracts, I believe), and then I scaled up and down by just dividing the 6000 by 2 or 3 or something.... I don't exactly remember, and I don't think it's important. As an aside, a lot of volume-bar traders use something like 2,000 for ES, so there is probably some confluence of bar sizes here, but also there is a simple appeal to numbers ending in "000" .

To transition to YM, I figured the average volume in ES and in YM, calculated the percentage YM was of ES, divided my ES chart numbers by that percentage, adjusted the number so it would end in a convenient number of zeros, checked the resulting YM volume chart compared to my ES charts, fiddled with the numbers until the charts kind of looked the same most of the time, and arrived at a roughly equivalent volume bar number (remember the ES number was fairly arbitrary in the first place.) I then subdivided down by factors of 2 until I arrived at my usual trading chart, which is 188 volume bars (It's actually 187.5, rounded up.)

How many traders in the world are using 188 contract-bars on YM? Probably some, because the process of getting there was not totally arbitrary, but certainly not many.

Now, I am not a great trader, but I am a decent reader of charts (which is not really that useful in trading, as every trader eventually finds out), and the charts make the same kind of sense and the same things work. Trendlines, MA's, chart patterns, measured moves, and on and on, all that stuff works the same exact way. I even use candlesticks the same way, It all works the same. (Well, until I start trading, and then the nut in my head starts making the usual dumb moves, but I/he was making those same moves on a 5-minute chart too.)

I think this argues well for the "fractal" hypothesis of the market (which is that market movements can be subdivided or expanded and they will show the same patterns), although it doesn't necessarily "prove" it either. It's just consistent with it. My hypothesis is more radical: I think you can slice up market movements all sorts of ways, and they will still show the same patterns. This isn't proven by any of this, either, but it is consistent with it.

The hypothesis that some some periods/types of price representation are specially good is also argued for, persuasively for many traders, by the fact that trading with them can be profitably done. But this also doesn't necessarily "prove" it. It's just consistent with it.

Perhaps there is more than one workable picture of reality?

My bottom line is only that when something works (which has a very simple meaning: it makes you money), then feel free to use it. Why not?

Bob.

In the last few months, I have actually changed my setup and am using 5 range hollow candle bars and 1 minute equivolume candle bars. Think I am doing even better now..

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Popsicle View Post
I totally agree with you....if one uses candles to trade the way you have described.

I do believe that they have a place though.

Thanks for your comment, and I agree with you -- I also use a chart, several in fact, but I don't use a closing bar price as a data point, and I don't place any emphasis on an individual bar, I just use them collectively to form a picture of the flow. Pattern recognition is very important in trading, and I can often spot a pattern on my chart that resonates with me, and I use this as the basis for a trade.

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bobwest View Post
You're going to have some difficulty convincing a number of people about this. (I do agree with you, by the way.)

There are a number of successful traders who think that, for example, the close of a 5-minute bar is very important, and that the choice of 5 minutes (or some multiple of it) is also very important. If a trader is profitable and has that belief, it is hard to convince him to change it.

This is a very balanced viewpoint and I appreciate it. Of course, my initial post is not meant to change anyone in the least, if they are using something that is working for them. It's meant more to (1) shed light on the need to use logic and reasoning in our trading decisions, instead of simply grasping at straws, and (2) encourage anyone having difficulty with a methodology that isn't working for them, to consider the "why" behind it.

This problem of blindly doing something because we have heard or, or read it, without really giving it deeper consideration, is not confined to the topic at hand, that's for sure!

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bfreis View Post
Fifth, and last, but not least, regarding these odd choices of things like 233-tick, or a 750 delta-volume, or a 12-4 range reversal, or whatever weird method to define the end of the current aggregation and the start of the next, for the summarization process, I don't see it as "magical numbers", but simply values/settings that allow me to see information with a sufficient amount of details, while eliminating as much noise as possible. 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.

Great post and thank you -- actually, I use a chart similar to this as well, except I don't plot a closing price. I will double the volume occasionally to see a more zoomed out view, and vice versa. Thanks again for your post!

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Thanks all for the great replies so far!

To be clear, this topic started is not why you shouldn't use charts (I do use them myself) or why a 233 tick chart is useless (I use a volume chart). My argument is that, on such a chart, using the actual closing price of an individual bar to make a trading decision has no basis in sound logic.

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Very interesting
lancelottrader View Post
In the last few months, I have actually changed my setup and am using 5 range hollow candle bars and 1 minute equivolume candle bars. Think I am doing even better now..

How does a 1 minute equivolume bar work? New bar which ever one (time or same volume) comes first?

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  #16 (permalink)
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josh View Post
My argument is that, on such a chart, using the actual closing price of an individual bar to make a trading decision has no basis in sound logic.

Hey Josh,

To comment on that part specifically.

Making decisions based on the closing price of a bar, specifically, is, in a way, similar to using a line chart (rather than candles) - it's a decision-making process based on sampled data. Maybe the only difference is that the candles also include a summarization (ie, "statistics", like the max and min over a period), while the line chart is purely sampling.

So I'd say that the value of making decisions based on the closing price - and, similarly, based on a pure line chart - is that a decision is being made on compressed data. The hypothesis is that there's too much data, and that choosing 1 data point among a tremendously large set of possible choices, will make decisions better than if the trader had to account for everything.

The actual process used to choose that data point is probably not that impactful - be it time, volume, range, etc. What's more important is what that specific sample represents in the context of the previous samples. Eg, can the trader identify an uptrend? If so, buy. Can the trader identify a reversal? If so, reverse. And so on.

Finally, I believe that while those sets of "rules" you were talking may not have an inherent profound meaning, they may be useful to help a trader utilize the summarized or sampled data he's looking it to help the decision making process. If the trader analyzes data and comes to the conclusion that, for instance, when the closing price is above xxxxxx, it's likely that the market is starting an uptrend (ie, the trader realizes that the probability distribution of the next movement is not uniform, but rather is skewed to seeing more movements to the upside than uniform randomness would suggest), well, then one can argue that there is sound logic: it's statistics.

Cheers

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This idea certainly is interesting.


When I think of trading, I think of it all as one big session, after all, time is a concept we came up with aswell, to describe rates of change and decay in the world around us. I feel that time is a flawed measurement given this outlook,

but the one thing I would say is that if we agree that markets move on psychology and emotion, and we also agree that psychology and emotion of the individual participants changes over time, then time must have indirect significance to the market.

Generally, I try to understand the psychology of the traders in my timeframe, and OTF traders to make a plan to enter.

I must concede however, that when I try to trade algorithmically, Ive been using the close as a condition for entry, so I would pose a follow up question,

@josh , while the close has no inherent value to me, I would argue that the fact there are market participants that make decisions based on the close causes it to have a certain level of significance (if only a little ) , What do you think ?

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The close of a 5m bar is probably the most important thing of the whole bar. It's the only point that actually makes it to a line chart that a lot people will look at.
Why? Simply because the majority of traders agree with that. Trading patterns are a reflection of human behavior and in the era of computerized trading the majority of institutions have decided that 1m, 5m, 60m, daily and weekly are the charts to use. All day every day you will see that 1R and 2R targets based on these points generate pullbacks and reversals.

It's just convention. It's the same reason why meetings start at 10.00 am and not at 10:06 or that is green is good and red is a warning. These conventions help us to agree on a certain thing and form a common base for us all to look at. Remember that in trading it's a much easier route to look at what the market is doing and to copy that behavior.

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KillerJukeBox View Post
while the close has no inherent value to me, I would argue that the fact there are market participants that make decisions based on the close causes it to have a certain level of significance (if only a little ) , What do you think ?

That's a very good point -- there are many derivative pieces of information that, if enough entities use it as a data point (say, a 200 day MA), gains relevance, and then becomes relevant enough to drive capital decisions. So yes, if enough entities use a particular data point, I'd say that it does gain significance.

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Pa Dax View Post
The close of a 5m bar is probably the most important thing of the whole bar. It's the only point that actually makes it to a line chart that a lot people will look at.
Why? Simply because the majority of traders agree with that. Trading patterns are a reflection of human behavior and in the era of computerized trading the majority of institutions have decided that 1m, 5m, 60m, daily and weekly are the charts to use. All day every day you will see that 1R and 2R targets based on these points generate pullbacks and reversals.

It's just convention. It's the same reason why meetings start at 10.00 am and not at 10:06 or that is green is good and red is a warning. These conventions help us to agree on a certain thing and form a common base for us all to look at. Remember that in trading it's a much easier route to look at what the market is doing and to copy that behavior.

This sounds like another case of "it's important because people use it," which I think is very true. I'd disagree though, that "institutions" as a whole are watching 5 minute bar closes to make trading decisions. Some, of course. But not many, I'd wager a guess. While the "everybody does it" argument is compelling and has merit, what I've yet to hear any reason that isn't based in this being a self-fulfilling prophecy.

Let's take a common strategy -- a "reversal bar" ... let's say you use a 15 minute chart. It's 10:35, and 100 is trading. Over the next 5 minutes, the market spikes up to a previously sold area at 105 and sellers bring it back down to 100. So, on a 5 minute chart you would have a reversal bar. But, you are looking at a 15 minute chart, and you have the bar you want, but it hasn't closed yet. Is there some reason to delay (assuming no scheduled news, etc.) taking your short? Why must a rather arbitrary 5 additional minutes pass before you sell it? What do those 5 minutes do for you? What if the market trades back up to 103 at 10:45, and then immediately falls back down to 100 after the close of the bar? Or, it trades down to 97 and back up to 100? Is it logical that the last traded price at the time 10:45:00 has more significance than the one at 10:46?

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?

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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.

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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

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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!

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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.

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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.

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@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.

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  #27 (permalink)
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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!

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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), youíre 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 donít think that means you canít obtain an edge, though.

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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), youíre 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 donít think that means you canít 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.

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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.

Thatís good to hear. If Iím being honest, TA is interesting and makes a lot of sense when studied ďin theoryĒ 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 Iíve asked (not on this forum, but others like it) has ever thought itís even possible.

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Thatís good to hear. If Iím being honest, TA is interesting and makes a lot of sense when studied ďin theoryĒ 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 Iíve asked (not on this forum, but others like it) has ever thought itís even possible.

I'm certainly not an expert of any kind in fundamentals. However, I think no matter what one's method involves, it absolutely helps to understand current market drivers. Recently this would include the US/China trade war, Brexit, and for many decades now, interest rates and central banks have continued to be a huge (if not the largest) driver of many different markets. Know when earnings season kicks in, know when FOMC meetings take place, understand the relationship between interest rates and currencies. Oil can at times be a driver for equities. For an intraday trader, knowing what happened with Japan and what's happening with Europe when the US market opens is absolutely essential, IMO.

I think a fundamental plan can be as simple as asking yourself questions like: (1) What companies will benefit from a particular outcome in the trade war? Look to buy those companies. (2) Which companies benefit from a strong/weak US dollar? (3) Recently I saw a story about "flight shaming" -- how will this affect DAL, LUV, etc.? (4) Disney is releasing Disney+, and Verizon is going to give it away? How does this affect NFLX? (5) What's on tap for earnings this week? If it's tech-heavy, for example, then look for beats/misses and how this might affect the nasdaq.

These are simple questions but they can lead to good trade ideas. I realize the above are equities-focused, but similar questions can be applied to fixed income, commodities, and global indexes as well. I'd say the most important fundamental thing to learn is interest rates. Interest rates drive everything. It's what the entire worldwide financial system is based on. Central banks are the most powerful economic entities on the planet.

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josh View Post
I'm certainly not an expert of any kind in fundamentals. However, I think no matter what one's method involves, it absolutely helps to understand current market drivers. Recently this would include the US/China trade war, Brexit, and for many decades now, interest rates and central banks have continued to be a huge (if not the largest) driver of many different markets. Know when earnings season kicks in, know when FOMC meetings take place, understand the relationship between interest rates and currencies. Oil can at times be a driver for equities. For an intraday trader, knowing what happened with Japan and what's happening with Europe when the US market opens is absolutely essential, IMO.

I think a fundamental plan can be as simple as asking yourself questions like: (1) What companies will benefit from a particular outcome in the trade war? Look to buy those companies. (2) Which companies benefit from a strong/weak US dollar? (3) Recently I saw a story about "flight shaming" -- how will this affect DAL, LUV, etc.? (4) Disney is releasing Disney+, and Verizon is going to give it away? How does this affect NFLX? (5) What's on tap for earnings this week? If it's tech-heavy, for example, then look for beats/misses and how this might affect the nasdaq.

These are simple questions but they can lead to good trade ideas. I realize the above are equities-focused, but similar questions can be applied to fixed income, commodities, and global indexes as well. I'd say the most important fundamental thing to learn is interest rates. Interest rates drive everything. It's what the entire worldwide financial system is based on. Central banks are the most powerful economic entities on the planet.

Thanks for the advice! I'm hoping to develop a trading strategy based on a more fundamental approach before I start journaling my progress - you've given me hope that it is indeed possible.

Do you know of any members on FIO specifically who have experience in this area?

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and great points.

The significance of an intra day close regardless of the time is in its relationship to the other closes. True enough all arbitrary. We see what the data as the software companies decide we should see it...that is a huge issue.

I'm wondering if there is a follow on point about data or time?

-Dan

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I have always being challenge by this and look at many bar types and periodicities and thought long and hard about this and never came to any satisfactory conclusion. In fact what remained was confusion. This thread has got me thinking again.

What do you guys think?

Would PnF charts best represent what the market is doing?

Accumulation or distribution to trend

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Had this same discussion with traders in our grp, to avoid conflict of any kind I simply pushed it as an opinion gathering and the final result was basically;

"It doesn't matter, data is data, it can look and paint picture in a lot of ways if you are good at manipulating it. This is mostly preferential matter, for example; if you are a scalper you would probably pay attention to close of first 5 min, 15 min bars of day opening, and yesterday range with its close. If you are positional trader you would probably pay attention to daily closes, especially those that had some kind of significance like that of engulfing price action. If you do not give some importance to it on your own or in your system, it is not important, if you do then it is important"

Nothing intellectual to add just sharing end result of discussion in fairly large grp, so its probably worth noting.

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LastDino View Post
If you do not give some importance to it on your own or in your system, it is not important, if you do then it is important"


This is probably true.

If you are positive that it is objectively important, or is objectively not important, then you will probably disagree. But if you don't think there is only one way to trade, you probably already suspect this anyway.



For myself, I think there is more than one way to skin a cat.

Just my half-cent.

Bob.

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I was indoctrinated into candles and the whole system of OHLC.
After a few years of roller coaster trading I could not see the value of such a system.

I know we are all 'time' creatures. We live and breath, wake up and go to sleep because of time.
I also know that there are a huge group that trade according to time. But as was mentioned earlier, what if your computer time is off by a few seconds or minutes? And what if a prop firm has a method to trade just before the 'most popular' candle close? How does all of that affect MY trade.

All of this was brought to view when @Fat Tails posted the thread about "Session Times". That one post changed the way I looked at candles.

Using my Laptop and my Desktop I started Ninjatrader with the same charts and workspaces. I loaded my live data feed and watched my charts. My desktop had the 'built-in" session times provided. My laptop had the new session times created from the method in the Session Times thread. The candles were totally different. The opens and closes were different and the appearance was different. I realized, if I traded against someone using my desktop while I used my laptop I would have a few seconds advantage with the time based candles I was using. LOL

But in reality, I realized the data was the same the market was the same, only the candles were different.
I went through a period of trying to find a candle that was universal, or that did not suffer from this problem.
I created Delta candle bar type (using NT with my extended data module). I tried all the candle types and even created a few of my own.
My conclusion was that candles were mostly insignificant. Time is important to many things but the close of a candle is not a fact but a theory.

So what do I use. Candles of course
I have a time based candle chart I glance at but not for trading. I use a custom 'range type' bars. They are not perfect by any means. They are not so special that they are the "Holy Grail" or even close. But ...
The only reason I use them is because NT performs better with COBC settings in my strategy.

I've thought about this problem a lot and have even considered creating a custom bar type that is not a candle at all.
The type could be a band with the high, low and largest volume (with shading or a line).
But it has to use some method to determine when to move the band across the screen (also known as a CLOSE). DUH!
So the CLOSE is not insignificant when you use a platform that is dependent upon them.
But it does not mean you must be bound to them or trade because of the close of a candle.

I've not created such a bar type because, what I use now, works for me and I'm not motivated to create a new system when this one is not broken.

After all is considered, using the bleeding right edge of the chart is really where the action is.
The candle close, moving averages, and indicators are History and only have a small significance to my trading.

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I've looked at this thread multiple times in the last week or so and it always gets me thinking. In the end I think I tend to agree with this sentiment...


LastDino View Post
If you do not give some importance to it on your own or in your system, it is not important, if you do then it is important"


bobwest View Post
For myself, I think there is more than one way to skin a cat.

So we are asking if the close of a candle carries greater informational significance than other points on chart? Has greater significance than some points on the chart and less than others? I've never thought of it this way before this thread, but these seem like important questions to answer for ourselves when we choose how we want our data displayed.

One side of me agrees that the close of a candle is pretty arbitrary and that there aren't any obvious correlations in price/time that would cause these data points (bar-closes) to have greater significance than other data points. But, the other side of me thinks...time is pretty significant to humans and we make a lot of decisions based on time. Time structures a lot of our behavior.

In my own trading I've seen bar-closes act as an important magnet or act as an effective anchor for a measured move. So I tend to attach significance to some bar-closes...sometimes. But I believe that there is more than one de facto style of trading.


josh View Post
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!

To muddy things up a bit...the uncertainty of markets creates an environment where behavior isn't always tethered to logic. (Just read my journal. Haha!). Thanks for creating this thread @josh, it's been a fun read!

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An intraday bar close is nothing more than a definitive point in time which is extremely important in strategy development. Time is a key factor in all of my strategies. Bars just happen to be on my chart but it could be a pumpkin for all I care as long as my trades are executed on time. Of course time is not my only condition for entry/exit.

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josh View Post
...OHLC...that's not much data...you know 4 of them.

You also know the order in which they occurred and the measure from one to the other, so you can make a general presumption about the transactions that occurred during that period. With that, you can choose the higher probability direction for the next bar (based on your past experience).

Thanks for starting a great topic.


bfreis View Post
...if you look at different [aggregations] (eg, a 1 min chart plus a 30 min chart...), conflicting analyses may be an indication of weaker entries/exits, while if they agree then it might be an indication of stronger entries/exits.

Agreed. I feel naked if I don't know where I'm at in the HTF. The popular advice of "pick a time frame and stick with it" sounds wrong in its simplicity. btw, that's the uncomfortable "naked", like naked at the grocery store. Not naked with the OL.


bfreis View Post
...I want to keep the "rhythm" of my chart approximately the same, regardless of the characteristics of the specific day.

Agreed again.


bobwest View Post
...I am a decent reader of charts (which is not really that useful in trading, as every trader eventually finds out)...It all works the same. (Well, until I start trading, and then the nut in my head starts making the usual dumb moves, but I/he was making those same moves on a 5-minute chart too.)

You too?, (or should I say Him too?). Its definitely not Me, its Him. Seriously though, great point. Its all voodoo used to wrestle with demons.


Pa Dax View Post
It's just convention. ...in trading it's a much easier route to look at what the market is doing and to copy that behavior.

...therefore, a voodoo's popularity is directly correlated to its mojo.


Rrrracer View Post
...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.

A very important point, imo. One that trumps LTF bar aggregations. And related to the point made by Pa Dax re the institutional use of line charts.

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I use several different tick bars for tape reading, length and closes of the bars are of great importance to me. Tick bars partition the action into traded unities, so you have short bars (high activity within small price range) and long bars (lower activity within larger price range, because of same amount of traded units as in short bars).
A wide-range-bar which closes in the upper third or lower third of the OHLC body is indicative for me, but only in it's tape reading context. E.G. a sell-off : if last and lowest bar is a WRB, but WRB closes in upper third, it could mean that the sell-off has stopped and a (at least) pullback is imminent. Swing traders' delight.

Also: Practice has proven that under certain circumstances several bar closes outside specific trend areas indicate a trend reversal.

On and on it goes.

But I agree: there is no use of the closing in time based bars. Never was. Never will be. At least for me.

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Palais Brongniart View Post
I use several different tick bars for tape reading, length and closes of the bars are of great importance to me. Tick bars partition the action into traded unities, so you have short bars (high activity within small price range) and long bars (lower activity within larger price range, because of same amount of traded units as in short bars).
A wide-range-bar which closes in the upper third or lower third of the OHLC body is indicative for me, but only in it's tape reading context. E.G. a sell-off : if last and lowest bar is a WRB, but WRB closes in upper third, it could mean that the sell-off has stopped and a (at least) pullback is imminent. Swing traders' delight.

Also: Practice has proven that under certain circumstances several bar closes outside specific trend areas indicate a trend reversal.

On and on it goes.

But I agree: there is no use of the closing in time based bars. Never was. Never will be. At least for me.

It all makes sense -- I use bars the same way, except mine are volume based. That is, a tall bar has a different meaning from a short bar. But one thing I don't get still: let's say your last and lowest bar is a WRB in a selloff, and the market rebounds higher and is trading in the upper third. Why does it need to close, to trigger a buy for you? What is it about the last trade that's so important?

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josh View Post
It all makes sense -- I use bars the same way, except mine are volume based. That is, a tall bar has a different meaning from a short bar. But one thing I don't get still: let's say your last and lowest bar is a WRB in a selloff, and the market rebounds higher and is trading in the upper third. Why does it need to close, to trigger a buy for you? What is it about the last trade that's so important?

Thanks for asking. In this old example I get several WRB with closes even at the top. That concludes the idea, that the overall structure is a trend reversing structure, more or less. Hope you can see it. It is an old pic which I can't modify right now.

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Palais Brongniart View Post
Thanks for asking. In this old example I get several WRB with closes even at the top. That concludes the idea, that the overall structure is a trend reversing structure, more or less. Hope you can see it. It is an old pic which I can't modify right now.

Test 1 and 2 of the bottom are WRB's with distinctive closes above, whereas Test 3 (trigger signal) consists of two subsequent WRB's. I buy the first pullback...

I do a lot of bar-to-bar work, means: I step bar-by-bar forward (approx 20-40 bars) until I reach the NOW. If I get a feeling about the market, the contract is under observation, if I don't, I go to the next market.

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And I am not so much an intraday trader. If my trade stays 4-6 days for good, it is a very profitable trade and reflects the average swing on a daily chart.

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Palais Brongniart View Post
Thanks for asking. In this old example I get several WRB with closes even at the top. That concludes the idea, that the overall structure is a trend reversing structure, more or less. Hope you can see it. It is an old pic which I can't modify right now.

So, if you made those bars in your chart HL bars only, with no open or close, you wouldn't have enough information to take the trade you want?

Several of the bars on the last test lower closed below your line. I don't see anywhere in there where the actual close makes any kind of difference in the overall structure.

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josh View Post
Thanks all for the great replies so far!

To be clear, this topic started is not why you shouldn't use charts (I do use them myself) or why a 233 tick chart is useless (I use a volume chart). My argument is that, on such a chart, using the actual closing price of an individual bar to make a trading decision has no basis in sound logic.

I followed this thread to see what bits of wisdom you were going to share with us beyond your original post.

So far it's been interesting to read how others have reacted to your comment(s), in some cases almost in defense of their belief.

You mentioned you think the close of a weekly bar or candle has some importance and you suggested a weekly bar close has more importance than a daily bar or candle close because the "global" markets are closed for the weekend.

I found these exceptions to your original statement interesting in that it lead me to believe you may not subscribe to the notion that the markets are fractal. I don't actually know what you believe in that regard but I found it interesting.

I don't actually know if I put any more weight on "The Close" of a bar or a candle, but I do look at them as part of my way of looking at any instrument I might decide to trade.

Not so much to assign any particular value or weighting to the close of the bar, but I do look at a bar close in concert with what the following bar does to gauge if a move is just getting started or is slowing down before a pullback or even possibly signalling that the move is coming to an end.

Regardless of what my beliefs are, we all look at things differently. Those differences are what makes the market.

Great thread, thanks for getting it going.
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josh View Post
So, if you made those bars in your chart HL bars only, with no open or close, you wouldn't have enough information to take the trade you want?

Several of the bars on the last test lower closed below your line. I don't see anywhere in there where the actual close makes any kind of difference in the overall structure.

Its the context, not the closes per se. I don't trade only from closes of a bar, I like to see closes, within clusters, certain structure, short term price pattern etc.
In this specific example I had 3 tests of a downside door (incorporated by WRB close-up), door did not open. Last test performs inside resilient cluster, door didn't open for breakdown. At the same time the overall structure shows lower highs which could have been upper part of descending (bearish) triangle. In my experience a descending bearish triangle does not show a base like that with distinctive rejections of price level. Again, that's discretionary perceived.
Thank you.

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TopGunNote View Post
I followed this thread to see what bits of wisdom you were going to share with us beyond your original post.

Sorry to disappoint you with no wisdom following :-D -- I have my opinions about this for sure, but I purposely have avoided talking about anything I do, to let this topic and thread stand on its own. This purpose of this thread really is to get people to think about what they do, and not to simply do things "by default" or because they see others doing them. In a trade, you have to follow the herd in order to avoid being trampled, but when it comes to developing a strategy, your own personal view of the market based on logic you accept because you have intentionally thought about things is critical, IMO, and it's suicide to follow the herd in this aspect.


TopGunNote View Post
I found these exceptions to your original statement interesting in that it lead me to believe you may not subscribe to the notion that the markets are fractal. I don't actually know what you believe in that regard but I found it interesting.

That's very insightful -- hopefully it's not too much of a cop out to say that I think they're *somewhat* fractal. We're talking about buying/selling patterns and the various reasons for that, and on a day timeframe, those motivations and resulting capital positioning are vastly different from an investor buying long term, for example. However, you still do see similar patterns on all timeframes -- capitulation, based in fear, happens regardless of what part of the flow of transactions you zoom in to.

Volume patterns certainly are not fractal -- there are times of the trading session when volume will almost always be higher than others, barring news. There are times of the year due to holidays and seasonality which tend to be higher in volume than others, again, all other things being equal.

The time of day regulates market opportunity, which is MP-speak; but one thing this means is that as the close approaches, those with decisions to make (do I hold this overnight? do I buy more?) come closer and closer to being forced to make that decision. So, you will often see markets do strange things during the last hour of trade, like ramp higher or sell off hard, that they don't do as often during the lunch hour, because the window of opportunity is closing. This fact alone, though basic as it is, sometimes eludes people who seem to think that getting in a trade at 12:00 is equivalent to getting in the same trade (same price, same structure, etc.) at 3pm (how many times have you gotten in a trade at 1pm, it works a little bit, comes back, bounces around your entry, stops you out for a 9 tick loss, and then near the close it suddenly works in the span of 15 minute?). They're not the same, by any stretch, and in this way, the market certainly is not fractal.

Last thought here, about your charts you posted. The top one says "multiple bar closes here fail to move higher" -- however, the bottom chart also has a consolidation which does result in a continuation higher. So, do the bar closes, which on this renko chart are simply consecutive alternating up/down closes, really matter? Isn't the key factor here that this is a consolidation? Looking at the time of day of your top chart, what actually happened immediately after was a continuation higher into the close. This proves nothing, of course, except to say that there was a consolidation, the market needed to go marginally lower to fuel one last leg higher into the close -- the close of the day, with participants rushing to position themselves, played a far larger factor, than bar closes generated as a derivation of transactions, didn't it? Increase your periodicity there by a tick or two, and you would have had a single renko candle for the entire consolidation, no closes even registered.

This choosing of the periodicity, the type of bar, all of it -- are chosen by you and me -- not by the market. Allowing the market to speak for itself is the most important thing we can do, and imposing our own structure must be done very carefully so as not to attribute some meaning to the market which is, in reality, meaning that we are ourselves imposing upon it. Yes, fully opinionated there, and not in any way to suggest your chart is somehow inferior to anything I use, simply stating my view.

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josh View Post

Last thought here, about your charts you posted. The top one says "multiple bar closes here fail to move higher" -- however, the bottom chart also has a consolidation which does result in a continuation higher. So, do the bar closes, which on this renko chart are simply consecutive alternating up/down closes, really matter? Isn't the key factor here that this is a consolidation? Looking at the time of day of your top chart, what actually happened immediately after was a continuation higher into the close.

This proves nothing, of course, except to say that there was a consolidation, the market needed to go marginally lower to fuel one last leg higher into the close -- the close of the day, with participants rushing to position themselves, played a far larger factor, than bar closes generated as a derivation of transactions, didn't it? Increase your periodicity there by a tick or two, and you would have had a single renko candle for the entire consolidation, no closes even registered.

This choosing of the periodicity, the type of bar, all of it -- are chosen by you and me -- not by the market. Allowing the market to speak for itself is the most important thing we can do, and imposing our own structure must be done very carefully so as not to attribute some meaning to the market which is, in reality, meaning that we are ourselves imposing upon it. Yes, fully opinionated there, and not in any way to suggest your chart is somehow inferior to anything I use, simply stating my view.

Thanks for your reply.

To be clear, my screenshots (roughly 10 minutes apart) were chosen simply to help illustrate my comment: "Not so much to assign any particular value or weighting to the close of the bar, but I do look at a bar close in concert with what the following bar does..."

I wasn't suggesting it proves anything, I was simply discussing how I look at a bar close as part of what happens next.

In regards to your comment about my choice of bar type or periodicity, I prefer to use choices that "speak to me", choices that I believe help me interpret what the market is saying to me, "Allowing the market to speak for itself"

I don't want to sound defensive here, I'm not defending my choices, they are what they are, and they do change over time as my own interpretation of what I think the market is saying to me changes.

Thanks again.

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TopGunNote View Post
To be clear, my screenshots (roughly 10 minutes apart) were chosen simply to help illustrate my comment: "Not so much to assign any particular value or weighting to the close of the bar, but I do look at a bar close in concert with what the following bar does..."

If I had to come down on any position in this discussion, I think this would be basically the one it would be. I think that the relative movement of the bars or whatever you are charting is what has the greatest amount of information, and that so long as you are consistently using the same things (bars of whatever type and/or durations, or points or lines or whatever), then you can extract most of the value you will get out of a chart by their actions relative to each other.

Sure, daily closes, weekly closes, etc. are different in their significance, and I"m not saying that no other bar type or period would be.

But this view speaks the most to me.

Bob.

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The OHLC of any particular bar (type or timeframe) is important to the particular trader. Otherwise duh they wouldn't use it.

But to say that X is arbitrary, well then so is Y and Z.

And as for the closing price of a daily/weekly/monthly being important. Yes until the opening of next daily/weekly/monthly. And round and round.

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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!

Holy crap josh!!! This is PURE GOLD!

My beliefs on the market are EXACTLY this. Its not that the market is random by any strech of the imagination its just a footprint in the past and you are just slicing information into WHATEVER makes sense to you!

You can take one day and the ONLY real information is WHERE the prints where made. Other than that you can slice it a million different ways and each one will look different. If you marked ALL the OHLC for all timeframes on one days charts you'd hit almost EVERY price point.

So much for analysis!!! It means nothing... yet it means EVERYTHING because without some kind of CONFIDENCE STRUCTURE you just can't trade. Messed up.

In MY opinion the market just does what it does and everything we do is OVERLAYED ON TOP OF IT. So if you overlayed YOUR entries on MY charts... everything would look different BUT the MARKET WAS THE SAME and so were YOUR trades.

Hope this makes sense?

Absolutely great post josh!!!

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