Why Execute Trades on the Close of the Bar
I am often invited to sit in on trading groups and observe what and how they trade. I generally don't jump in and start spouting advice or "you ought to do this", or, "you ought to do that." I am much more content to watch and learn, and answer any questions, to the best of my ability, anyone might have. To be honest, I often have a heck of a time figuring out how many of the groups trade, that is, what criteria are they using to time their entries and exits.
But one rule that I have for myself is never observed, and it's a very simple rule: I only trade at the end of the bar I am observing. I do this for a number of reasons, the most important being that my indicators are all based on opening and closing prices and trading mid bar would make the oscillator readings irrelevant. More importantly, each bar, whether it be a 3 minute, or 15 minute, or 1 hour, is essentially a tiny battle between buyers and sellers and the bar closing is the ultimate arbiter of just who won the little battle. These bar formations are the basis for trade set-ups and active trading.
As a trader who is looking for pure set-ups, at least as I define them, trading mid bar puts me in a position of guessing just what the price action actually is for the time period. It can be painful to watch a nice long bar appear out of nowhere and rise for a great gain as you sit on the sidelines waiting for the bar to close. On the other hand, it can be just as excrutiating taking a poor entry point and watching your hard earned money evaporate as you run headlong into a poorly timed trade that decimates your trading account.
I never like to feel like I am guessing when I trade, or hoping for a positive outcome. I expect a positive outcome because I have done my homework. I should point out that no matter how good a set-up looks it can easily turn into a losing trade. This is the nature of trading, but probabilities are also the basis of trading and I want to take the highest percentage trades, the ones that experience and knowledge have proven they can be effective, not trades where I am simply hoping for a positive outcome.
So, forget all the movement inside a bar, whether they are candlestick or bar charts and concetrate on the opening and closing prices, they are all that matter, and most oscillators use these numbers to calculate the articulated lines they produce. I make each and every decision to trade at the end of the time period I have chosen, usually 2 or 3 minute bars, and never take a trade mid-bar.
Questions and Answers
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