Much data can be gleaned by stock traders from the price bar alone.

The opening price is considered important by technical analysts. It’s supposedly the first trade of the day, at a price offered by the seller and accepted by the buyer, and therefore it sets the tone for the day’s trading, particularly when considered against the previous day’s close:

• When the open is up in comparison to the previous close, other traders seem to assume that first trader knows something positive about the company or the stock, giving him some reason for expecting a profit from the purchase. It’s seen as something of a good omen.
• When the open is down in comparison to the previous close, other traders assume that first trader has a reason to unload the stock. In that case, the omen isn’t so good.

But there are two caveats to these assumptions. The first is that some international stock exchanges and publishers providing data to the trading world, no longer report the “real” first trade of the day, but rather a synthetic price, often an average of the first five trades. (This practice is common in the U.S. and U.S.-based publishers, such as Reuters.) This averaging can hide whether the first trade was up or down, particularly in a tight market.

The other caveat is that the first trade may not have been a reflection on the company or its stock at all, but the industry segment or the index representing it. Traders leaving “buy on open” orders with their brokers for a mining industry index, for example, can skew the daily expectations for a single mining company’s stock.

The closing price, unlike the open, truly is the last transaction of the trading day, and therefore really does reflect the market’s ending sentiment for the company and stock. For this reason, the close is considered the most important part of the price bar. Some charting services offer “close only” charts, and the series of dots can be used as a trading indicator.

The most important relationships for the close are the day’s open and the previous day’s close:

• If the stock has an up-day, the close was higher than the previous day’s close. When supported by higher volume, this means more traders wanted the stock and were willing to pay a higher price to get it.
• If the stock has a down-day, the close was lower than the previous day’s close. When supported by higher volume, this means more traders wanted to unload the stock and were willing to accept a lower price to do so.

The closing price can be affected by “sell on close” orders, entered by traders who don’t wish to hold the stock overnight. These orders typically drive the price lower just prior to closing, and so if the close is the day’s high, there were sufficient motivated buyers to overcome this downward pressure, another good omen.

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