Why you should Examine Yesterday’s Market Prices

In forex trading, to effectively anticipate future prices, you should understand the previous day’s market behaviour.

It is important you pay attention to yesterday’s closing, high and low prices.

These price points can provide hints on potential market direction and help traders plan their entries and exits.

Let’s examine why these price points matter:

A. Previous day’s closing price

The closing price of the previous trading session can function as a fundamental reference point for you.

It gives a picture of the collective agreement between buyers and sellers at the end of the day — a snapshot of market sentiment.

Importance:

Yesterday’s closing price is a useful component in calculating pivot points. It helps you spot potential support and resistance levels (and determine your entries and exits).

It can also be used as a reference point to draw trend line(s) and speculate the overall direction of the market.

As mentioned earlier, it can be used to gauge (see and judge) market sentiment.

A strong close marked by a notable price increase implies bullish sentiment.

Here, we expect an upward momentum. And if the reverse is the case, we anticipate a downward movement.

In addition, a significant gap between yesterday’s closing price and the opening price of the current session means a shift in market sentiment.

A gap up (a higher open) would suggest a bull market, and a gap down would indicate a downtrend (selling opportunities).

Potential breakout or breakdown points can be identified with previous close when the price breaks above resistance or below support levels.

And lastly, traders can use this close price to predict potential pullback levels, where the price may temporarily retrace before continuing its trend.

B. Yesterday’s high and low

These are valuable price points that give an image of market volatility, and potential price movement too.

Uses/advantages:

Tracking these points over time can give you a picture of periods of increased or decreased volatility.

They can be used to calculate indicators like Fibonacci retracement.

Also, they often act as a good support and resistance level for short term traders.

Traders may look for opportunities to enter positions during pullbacks to these levels or capitalize on trend continuations through breakouts.

When prices repeatedly pull back to yesterday’s high or low without breaking through, it may indicate a period of market consolidation.

This can present opportunities for scalping strategies or adjusting existing positions.

It can be used to set stop-loss and take profit levels by swing traders.

Retests of broken support or resistance levels can confirm the strength of a trend.

In range-bound trading, previous high/low can help in the identification of the upper and lower limits of the trading range.

FAQs

What is the previous trading day’s close?
The previous trading day’s close is the last traded price of an asset class before a market/session ended or closed for the day.

Why are previous close and open prices different?
These prices can differ due to many factors such as news events (resulting in price gap), market sentiment, and order imbalances.

Why is the previous day close important in trading?
Yesterday’s close is important in trading for these reasons:

• It can help traders identify trends
• It can help in the recognition of support and resistance levels
• It can be used in the calculation of some technical indicators like fib retracement, relative strength index, etc
• Helps in the identification of gaps.