Amateurs Open, Professionals Close The Market
It’s 9:00am in the morning – traders and brokers are lined up in anticipation. They’ve got their order books ready, and they know what they have to do. All of a sudden, 10:00 am hits – the market opens and a flurry of activity sends the market higher, higher, and higher still. Brokers buy the stock for their clients frantically, and traders execute their orders with specialist precision. It looks like it’s going to be a good day.
But over the course of the day, the market falls. Then it falls a little further. By 3:00 pm the market is almost back where it opened, and by the closing bell it has slipped below yesterday’s close. Traders and investors look at the market quote board in dismay. What happened?
The Importance Of The Close
There is an old saying that the “amateurs open the market, and the professionals close it”. This means that most amateurs are rushing in their orders at the opening bell, and most professionals are placing their orders in the last hour of trade. And that makes the closing price extremely important. If a stock travels down during the day, but in the last hour of trade comes back up to its highs, what could we assume? That professional players (or players with large amounts of money) are buying the stock and raising the price. Likewise, if a stock travels down but stays down until the close, we could assume that there are either no professional players buying, or there are professional players selling.
How Can I Use This Information To Make Money?
Like anything in life, it doesn’t matter what information you have if you can’t make use of it. Apart from using the closing price in our trading (see the ABC Corrections and Low Risk Entry or Trading With Doji Patterns), we can also be warned not place our orders at the market open. Not only is the market open usually very volatile, but the market may change drastically over the course of the day. Now, some people’s trading plans may call for a quicker entry into a stock and that is fine – but generally it pays to be sure rather than to rush in.
We can also use this information in the form of a strong up or strong down day. For instance if the market index travels up for the entire day and closes on it’s highs, this is very bullish, and a good (although very early) sign that the market will trend up over the next few days. The opposite is true for a strong down day.
Trading and investing is a great pastime and a fun hobby, but a brilliant business also once you learn to trade in harmony with the market. Having the professionals on your side as opposed to the amateurs is one more step to ensuring that harmony is with you.
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