Closing price strategy vs settlement price: This video (and article) will give you key insights on how the “settlement price” is often different from a closing price, which will surely help you improve tremendously in your trades.
If you use the closing price, instead of settlement price, it can give you false readings for Fibonacci levels, Floor Trader Pivots and other support/resistance levels.
Amateurs use the “closing” price. Professionals use the “settlement” price. Which do you want to be?
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Closing price strategy vs settlement price
Welcome to this video on the closing price strategy vs settlement price. This comes into play, very importantly, when you’re using any type of indicators or techniques that have to do with calculating the closing price of bars, whether it’s indicators or intraday. For example, if you’re using floor trader pivots, this would be one of the biggest places where this could dramatically affect, potentially, where your floor trade pivots end up. And so if you’re finding that you’re drawing floor trading pivots based off the open high-low close, running it through the formula and the levels are not working for you, don’t dismiss them. It might be that you’re using the wrong price for the close and it could be dramatically off. So let me show you an example of that right now. Here we’ve got to the Nasdaq futures. This was Nasdaq 100 futures.
This was Friday, the 17th of November. And if we come here, first of all, if we go to the New York close, these times down below our California Times. So 13:00 is 1:00 California time, which is of course 4:00 New York time, so that’s the new year closed, but we don’t use that for futures. If you’re trading stocks, you would, but for futures, we go to 15 minutes after the hour and there we go. So you notice if down at the bottom where it shows the time and that’s 13:15. If I go to the next bar, market closes and opens back up again 15 minutes later. So 13:31 is when that bar closes.
How is the “settlement price” different from a closing price?
These are just one-minute bars, we did that to get a very precise timing on each one of these. In fact, if you go to the cmegroup.com website and you go to the data section, you can pull up the settlement prices and it will give you the open high-low close and settlement for every market, every contract.
Well, they’ve got the last price listed as 6308.75. They’ve got settlement listed as 6313.25 and. by the way, the last price traded in the close in the settlement can be three different things; that’s where it gets a little confusing for people sometimes. Is the last price traded at the close? The answer is no. And the reason for that, part of the reason I believe, is because if they use the last price traded, somebody could throw in a last trade at a weird price and really threw off the stats of everything, so it’s a good thing they don’t do that.
Settlement is the official number you really want, so when you go to the exchange, and this is the best way to get the settlement number is whatever exchange you’re trading on, go to your exchange website, check out to the market that you’re trading and look at their official settlement number, again, the term is settlement. And that’s the number that I would use for my floor trader pivots when typing in the close.
Settlement price example
So the settlement for this day was 6313.25. Now, the last price is listed on the cme group website at 6309.75, and that’s because they go over here. And if you look at it, the close of that bar is at 6309.5. Well that’s a big difference, right? That’s three and a half point difference. So three and a half points is going to make a big difference when you plug that in as to how your floor trader pivots plot. So make sure you use the right number. In other words, if you’re using the number on your charts, here’s what a lot of people do. They will just go to their chart and they would use either that number or they would use the number 6312.75.
So it can’t depend on your charts, this is the bottom line point, do not depend on your charts for the close of the day. You’ve got to wait. By the way, there is a whole a procedure for how they determine this settlement. Basically, several tiers in the way that they will do it, depending on what happens, that might be based on volume weighted average price of the last 30 seconds of trading or the midpoint of the low bid and the high ask or there’s a couple of different ways that they will do it in different months, different contract months to have different rules. So not no reason to go through all of that. Bottom line is just getting the right number, the way to get the right number is to go to the exchange.
Daily settlement example
Now, let’s look at a daily chart. So if your trading off of a daily chart, then of course, again, whatever the close is on the daily chart that’s plotted or printed on your daily chart, that’s going to affect your indicators. And the indicators that you use to the calculation of the close of the bar, especially. We’re not talking about affecting the floor trader pivots, we’re talking about really any indicators that you use that use the close. Now, what you want do is you want to go to, here’s this day, the 17th, activate the right bar. All right, there it is, the same day that we’re talking about. And you’ll notice that on mine, now I’m using kinetic data, and they do have the close as 6313.25, which is the same as what is printed at the cmegroup.com for the settlement that day.
So that’s good. That’s what you want. I would encourage you to check that out. See if your data provider, whoever it is giving you that number as the close on your daily charts. If it is, you’re golden, and if it’s not well, things are going to be a little different. This is why sometimes people say how come my indicators look a little different than yours even though I’ve got the same settings and all of that. It’s not the indicator that is messing you up, it is just simply that perhaps the data is just a little bit different since the indicators you’re using that data to plot its patterns, it’ll show up a little different too. Double check on that.
Wrapping things up on our closing price strategy vs settlement price
Good thing to check. You can ask your data provider and, by the way, your data provider may or may not be the same company that provides your charting software where may or may not be the same company that is your brokerage firm.
So you got to go to the data provider. This is a data issue, not necessarily a brokerage issue or charting software issue. So that’s it, might seem like a little thing and a lot of times it is, frankly. A lot of times the difference between the close or the last price traded or settlement is not very much. I think on this day and the S & P, it was about two ticks off. So that wasn’t too much. And there are days when it would be very close. Then there are other days, like this day, three and a half point difference. Now, that’s pretty significant and that will make a difference.
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