Defining a Stock’s Closing Price
A stock’s closing price is its final cost per share at the end of the trading day. While this price varies by market and location, the major stock exchanges in the United States close each day at 4 p.m. Eastern Standard Time. Along with the opening price, the closing price is often considered the most important metric for investors, partially because many traders determine their final positions in the last business hour of the trading day.
- For most purposes, a stock’s closing price is the sale of the day’s last 100 shares before the major U.S. markets close at 4 p.m.
- This is an important metric for investors since it provides information about a stock’s fluctuation over a specific period.
- Traders must distinguish between the regular session closing price and the after-hours closing price, which can be substantially different because of the lower trading volume post-close.
- NASDAQ and the Consolidated Tape Association have developed reporting standards to reduce trader confusion and provide consistency.
- Investors use the closing price in a variety of strategies. For example, it can confirm trends, be used to calculate the moving average indicator, and illustrate a breakout.
- A stock’s closing price is influenced by diverse factors, including but not limited to the actions of institutional investors and short-term speculators, major industry and market news, and price manipulation.
What Is a Stock’s Closing Price?
The markets and industry publications officially define a stock’s closing price as the trading price of the final lot of 100 shares when the bell rings to mark the end of the day. Often, investors use this price as a benchmark to track the rise and fall of an asset’s value over time. Before trading became primarily electronic, newspapers often only printed the stock’s closing price.
After-hours trading complicates matters a bit, so when you use this metric it’s important to understand whether you are looking at the true closing price or the after-hours price. Because fewer trades take place after the closing bell, investors should not consider an after-hours price a reflection of the real stock value.
Most traders consider the stock’s opening and closing price more important than its highs and lows throughout the day. In fact, they often refer to these intraday price changes as ‘noise’ that does not accurately reflect the stock’s value.
Reporting Standards for Stock Closing Prices
The Consolidated Tape Association (CTA) is the official reporter of exchange-traded transaction prices. This group has created a standardized system to report closing prices in which the 4 p.m. price is listed as the regular session closing price. CTA trades that occur after-hours appear on the report with the letter ‘T.’ These trades do not change the high, low, and closing prices for the regular session.
NASDAQ has also adopted these conventions, but other exchanges and news sources may report closing prices differently. When the after-hours trading price shows a significant change from the closing price, these discrepancies can lead to confusion for investors.
Determining the Closing Price
If you’re seeking the closing price for a particular stock, make sure you’re looking at data from the regular primary market for that asset. Usually, you’ll be looking at the security’s price at 4 p.m. EST. Be aware of indicators that the price reported is actually from after-hours options trading, such as the T mark or a later timestamp. In general, when a news source refers to a gain or loss from the prior day, they are using the closing price as the basis for comparison.
Traders who regularly track a stock’s closing price with technical analysis typically use candlestick charts. These financial charts indicate price movement, with each ‘candlestick’ bar representing a single day and an entire chart spanning a week, month, or longer. Candlestick charts indicate a stock’s closing price as well as a wealth of other information that investors use to make buy and sell decisions.
Using the Closing Price
You can compare a stock’s current closing price to its closing price at any point in the past to determine how its value has changed over time. Investment news resources provide charts that track a stock’s closing price for every day since it went public. For exchange-traded funds, investors should look at the closing price as well as the intraday prices to estimate fair value.
Traders can glean a startling amount of information from the stock’s trading price, including:
- Strength of and confidence in a particular security, illustrated by a closing price close to that day’s peak price.
- The weakness of a security, reflected by a selloff and resulting price drop at the end of the day.
- The momentum of a market trend, signaled by whether a high or low price rebounds before market close.
- Calculation of the moving average indicator, a trading chart tool that removes noise to more clearly display a trend.
- Validate a breakout or breakdown to guide trading decisions.
Investors who use technical analysis rely on opening and closing prices to create many types of charts. They look for patterns that can predict a trend turnaround. They also draw lines of support and resistance that indicate the trend of a market or asset. The resistance line indicates the current ceiling of a particular asset (usually on a weekly chart), while the support line represents its nadir over that time frame. Opening and closing prices are the most important aspect of defining this key metric.
Understanding Factors That Influence the Closing Price
Experienced traders begin to develop a sense of the many potential impacts on a stock’s closing price. These include:
The Impact of Major News
Image via Flickr by (Mick Baker)rooster
Keep in mind that public companies usually make significant announcements that can affect their stock prices, such as information about dividends, stock splits, and earnings, after the end of the trading day. This situation can result in a dramatic but fleeting change in the stock price overnight.
For example, an after-hours announcement about a stock split will immediately result in a dramatic price change. A two-for-one stock split would halve the stock’s price, and the resulting value is known as the adjusted closing price.
A reverse stock split has the opposite effect. It could be a sign that a company is trying to bolster its stock price to appear healthier to potential investors. In a one-for-two split, the stock’s adjusted closing price will be double its regular closing price.
Institutional Investor Actions
Brokerage firms, mutual funds, and other institutional investors represent approximately 75% of each day’s trading volume. These firms usually move to their final trading position in the last hour of the day. A major shift just before closing signifies the market’s overall mood about a particular asset. With such a larger trading volume, these investors can really sway a stock price.
Many investors, sometimes called speculators, use a technique called short-selling to profit on a dropping stock. With this method, the trader will borrow shares of the asset and sell them at the current high price, then buy them back after the price drops to repay the loan. This strategy is high-risk because the trader could incur an unlimited loss if the stock price goes up instead of down after they sell the original shares. If a stock is ripe for speculation, analysis will uncover a daily closing price near the asset’s highest point for that day.
Some traders try to influence the direction of a stock to suit their strategy, either by artificially boosting the price or causing it to decrease. You can detect manipulation when you notice several smaller trades just before closing or a sudden, unexpected increase in a stock that previously displayed poor performance.
I f you’re just starting to look at stock data to inform your trading strategy, start by reviewing the stock’s closing price for your target assets. Look at different time periods to get a sense of how that stock has grown and changed over time.