How to Interpret Opening and Closing Prices

The opening price, also known as the opening rate, refers to the first transaction price of a currency pair at the start of a trading session. Most global financial exchanges determine the opening price based on the principle of maximum transaction volume. The closing price is the final transaction price before the market closes for the day. If no transaction occurs, the most recent price is used as the closing price. Since the closing price serves as the benchmark for the day’s market activity and influences the next session’s opening price, it is crucial for predicting future trends. Therefore, investors typically use the closing price as the basis for technical analysis.

How to Analyze the Opening Price
On monthly, weekly, or daily charts, the opening price reflects the continuation of the prior period’s trend. The relationship between the opening price (higher, lower, or flat) and the prevailing trend provides key insights:

• In an uptrend, a higher opening price may lead to an upward gap, often signaling the start of a bullish market when seen on weekly charts.

• Daily charts typically exhibit three types of gaps: breakaway, continuation, and exhaustion gaps, each offering clues about future price movements.

• Conversely, in a downtrend, a lower opening price can trigger a downward gap. A weekly downward gap often marks the beginning of a bearish phase, especially if it occurs at a high price level, warranting caution.

How to Analyze the Closing Price
The closing price represents the outcome of the battle between bulls and bears over a given period. Its position relative to key moving averages clarifies market conditions:

• In an uptrend, if the closing price remains above the 5, 10, 20, and 30-day moving averages, it confirms bullish strength. Entering the market early in this phase increases profit potential.

• If the closing price falls below these averages, it indicates a downtrend and weak market momentum.