What is Previous Close?
Previous close is a security's closing price on the preceding time period of the one being referenced. Previous close almost always refers to the prior day's final price of a security when the market officially closes for the day. It can apply to a stock, bond, commodity, futures or option contract, market index, or any other security.
- Previous close represents the last price reported as traded during a given time period.
- The most common reference to previous close is for a daily time frame.
- Previous closes on any security are important data points for measurement purposes.
Understanding a Previous Close
In financial information the previous closing price of any security is an important daily measure for reporting purposes. It marks the daily measuring point against which updated returns can be calculated and for which new information is gathered to inform new investing decisions and strategies. It can be an important indicator for a variety of different technical patterns and fundamental measures. It is one of two essential components in a candlestick day chart. It also may be used by investors and technical analysts to chart gap patterns which can show substantial changes from a previous close to new open.
While most references to previous close assume a day-long time frame for trading, the reference to the previous close among algorithmic traders, quantitative analysts and trading system researchers can refer to the previous close of any given time period from seconds to hours or days, weeks, months and even years.
A security's previous close is an important value displayed on end of day communications. The previous close will be the value displayed from any financial news source after financial market trading has been halted for the day. The most commonly published source for closing prices is the New York Stock Exchange (NYSE). Of all the data sources available, the various index and securities closing prices as published by the NYSE carry the most authenticity.
A stock’s closing value is typically shown with its gain or loss for the day until the next opening value occurs. Most news outlets calculate price changes based on the difference from a security’s market open to the market close.
Some financial systems use a ticker tape style of communication which may provide several pieces of information about a stock including its current price, volume, and gain or loss. Many ticker tape communications will provide the gain or loss based on the difference in value from the previous day’s closing price and the current price. In general, an up or down arrow shows the stock’s current price trend. A significant price change can usually indicate major news about the company, such as an acquisition, change in management or positive earnings beat.
Technical traders also use candlestick patterns and follow price gaps for trading insight. A candlestick pattern is created from a security’s open and closing price. If a closing price is higher than the open a green candlestick is formed. If a security’s closing price is lower than the open, then a red candlestick is formed. Traders follow the movement of candlestick patterns over time to distinguish trends. Traders may also closely follow the movement from one day to the next to identify a gap pattern.
Up gap and down gap patterns are two important patterns that a trader may use as an indicator. An up gap occurs when the opening price of a security is significantly higher than the closing price from the previous day. A down gap occurs when a security’s opening price is significantly lower than the previous day’s closing price. Significant gaps from the closing price to the opening price can be caused by company news or management releases. In some cases, an up gap or a down gap can also be an indication of a price trend.