Why is it important to watch yesterday's prices?

Yesterday's closing price, along with the daily low and high, can be important levels for traders. They provide insights into potential price movements for the following day. How can you use them to your advantage?

Although each trader makes decisions about entering a position based on current market conditions, the previous day's closing, high and low prices can give a lot of clues about the direction the markets are likely to move. These prices can be interesting reference points from which traders can better plan their entries and exits into the markets.

Close price

The previous day's closing price can be a good reference point for traders to use when comparing it to the current price. Not only in forex, but also in other markets which, unlike forex, have a longer pause between market open and close, this price represents the consensus of buyers and sellers, so it reflects the current sentiment in the market. When a large gap then develops between one day's closing price and the next day's opening price, it can indicate a change in sentiment in that market.

The close price is very often used by indicators in technical analysis in their calculations, together with the maximum and minimum price it is then part of the calculations for example for pivots. The closing price can be used by long-term traders, for example, as a tool to confirm or break a trend, or to identify consolidation in the market by comparing the closing prices of several consecutive days.

Short-term traders, on the other hand, may use the closing price as an important level to identify support or resistance, which price may test several times during the following day. The close price can thus act as a very good point of entry or exit from the markets.

An example of the use of the previous day's closing price can also be seen in the image below, where it acts as an important support that was tested several times at the beginning of the trading day to eventually end the downtrend and the price started to rise.

High and low

Similar to the closing price, the local high and low from the previous trading day can serve a good role as important levels, both in terms of technical analysis and in monitoring market sentiment. Just like the closing price, the daily high and low are used in the calculation of various indicators, such as the Fibonacci retracement, or the aforementioned pivot points.

The daily high and low can primarily represent good support and resistance levels, especially for short-term intraday traders. Thus, they can be used as pullback points when short-term trends end and can be used to target entries into the markets.

On the other hand, if the price breaks through yesterday's high or low, it may signal a continuation of the trend. If there is a retest of a given level before the breakout, it may be a confirmation of a very strong trend.

Repeated pullbacks from yesterday's high and low throughout the day may in turn indicate consolidation in the market as the market looks for direction. This can be exploited by scalpers, for example, who can then open short-term positions in either direction even if no trend prevails in the market on a given day.

They can also be used as exit points for those traders who already hold an open position, either in the form of a Take Profit when the price is approaching a given low or high from the previous day, or as a Stop Loss level for those who have opened a position after a pullback/break of a given price level.

Conclusion

The closing price, along with the previous day's minimum and maximum price, can be a very good source of information for traders about what will happen in the market on a given day. Combined with other technical analysis tools, they can serve as a great supplement when planning entries and exits into the market, helping traders plan trades and execute their trading strategy.