Of the four prices comprising the price bar, the close is considered the most important, particularly on daily charts. Some traders set such store by the close that it’s the only price on their charts, which are drawn either as single-line graphs called “mountains” or as a series of dots. As well, a pattern of up-day or down-day closes can serve as a short-term indicator.
Literally, the close is the last price at which a buyer bought and a seller sold that currency pair during that trading period. On daily charts, this is significant because it’s settlement time, when brokerages either pay or charge rollovers, the difference between the base and cross currencies’ national cash rates. While it’s easy to imagine a trader holding a position past settlement if it pays a rollover, he’s more likely to exit the position prior to settlement if he’s going to be charged and he doesn’t believe the currency pair will advance further in any case. In short, the close at the end of the forex trading day signifies how traders feel about the currency pair’s direction for the immediate future.
Like the other three prices, the close is best considered in context, particularly its relationship to the open and the preceding close:
• In an up day, the close is higher than the close of the preceding day.
• In a down day, the close is lower than that of the preceding day.
• An ascending candle or positive price bar has the close higher than the open.
• A descending candle or negative price bar has the close lower than the open.
A chart showing a series of up days, with the close consistently higher than the preceding one, implies that buyers want that currency pair and are willing to pay an increasingly higher price for it. This creates a bullish tone for the next day’s trading. But a series of down days, with the close falling over time, implies that sellers want to unload that currency pair and are willing to accept increasingly lower prices for it. This of course creates a bearish tone for the next day’s trading.
Just as some fund managers buy on open, they and many retail traders also sell on close, exiting their position to prevent geopolitical and global economic risks from damaging their portfolio overnight. For this reason, the close on daily charts is rarely the high, as the selling pressure tends to weaken the price slightly. When the close is the high, that indicates strong pressure from the bulls, sufficiently strong to overwhelm the sell on close influence.
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