The Importance of Prior Price Levels

An old cliche of financial markets touts something about price actions spending a majority of time going sideways and a minimal amount of time trending in direction. That is certainly true, but not in the same context for intraday traders. How many times have we seen the indexes move up and down through several generous price ranges, only to settle out at the close nearly where price opened? At first glance it appears that nothing happened within the day. Traders know differently. It is true that price action on a day-to-day basis often trends sideways. Price ranges in between those bells is a different matter entirely.

One of the most useful price measurement tools for identifying key action points intraday is the prior session's open - high - low - close measures. All four are magnetic, with the prior session's high and low particularly key. Where price action is in relation to the previous day's high or low tells you plenty at a glance.

NQ 10-Minute Chart

NQ futures held the Monday 4/07 range inside of Friday 4/04 price highs and lows. Net result was a session that closed relatively unchanged from day to day, but with a 30-point drop from highs to lows offering significant profit opportunity. Seeing price action test and fail at the high mark prepared us for pending sell signals below or potential long signals above this critical level, whichever came first.

NQ 10-Minute Chart

Where prior session price values cluster are very strong layers of resistance or support. Days where the high and/or low are also opening and closing, values can be expected to offer reversal points when tested. Layers that are broken tend to fulfill the "prior support now resistance" or "prior resistance now support" adage.

NQ 10-Minute Chart

Another example of price action testing prior session highs and close combined for a few hours before the drop. Resistance held numerous tests, so sellers prevailed and went back down to test the prior session's open into this session's close. Just another "sideways" day where the highs and lows were contained inside previous session's range. For intraday traders, that info is invaluable.

ES 10-Minute Chart

Sessions where prior open - high - low - close values are spread out tend to see these levels as magnets where price action pauses before continuing direction or reversing entirely. Much like floor trader pivots, prior session price levels are important points of reference for managing intraday trade decisions.

Summation

Knowing where the prior day's price levels are is important for all intraday traders of any financial market. Most chart service packages have these tools defaulted in them for ease of use. TradeStation lists them inside "analysis technique" section while NinjaTrader has them under "indicators" section. Simply drawing horizontal lines at prior day's measure that project forward into the current session serves the same purpose. Keeping an eye on those critical lines will help guide you towards where price action should go from there.

Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures and commodity markets. Mr. Passamonte's trading approach uses proprietary chart patterns found on an intraday basis. Austin trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets