The market has been setting new record highs over the past several weeks. In MTM’s group coaching class, I frequently find myself talking about how a stock or the market will close. As of late, it has usually been a potential bullish close. To me, waiting on the close is vitally important as a technical trader to get an edge.
Of course, there is never a guarantee the market will open higher or lower the next session, no matter what it does on the previous day’s close. Let’s face it: News drives the market too. If we knew how the market would open, trading would for sure be a whole lot easier. But there is something I look for on a constant basis that I have found helps me put the odds on my side the next session.
Directional Help
When I am looking for a bullish or bearish directional trade, the way the underlying closes is vitally important. For example, if a stock looks like it wants to move higher, I like to enter a positive delta bullish trade close to the end of the session. I want to see the underlying close toward the high of the day or at least in a bullish manner on a smaller time frame than the daily. Check out a recent daily chart of Roblox Corp. (RBLX) below.
Looking for a Continuation
Many times, you will see the stock continue to move higher, particularly if it is breaking a resistance level or triggering a bullish reversal. Take a look at the RBLX daily chart below a couple of days later as it continued to move higher after that break of a resistance level and bullish close.
The stock continued to surge higher after the bullish breakout candle, and it moved more than $10 higher over the next several sessions. Buyers closed the stock in a bullish manner several more times, pushing it even higher after the initial breakout. As this example demonstrates, buyers jumping in at the end of the day can be a bullish trigger for the next session.
Put the Odds on Your Side
Obviously, whether a stock closes bullish or bearish, there is no guarantee it will continue in that fashion the next session. Let’s not forget the market might have something to do with that. There is market risk that can move stocks too. But being patient and waiting to enter a position when there is a bullish or bearish confirmation candle, particularly at the end of the session, can give you an edge with the odds on your side the very next trading day.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
