One of the strongest intra-day indicators for a stock is the moment a stock goes red on the day. Meaning it is crossing the previous close on the down side.
This is often a sign for a lots of traders to close their long position or open a short position. Both are actions that will push the stock down further. Often you’ll see a stock drop very quick the moment when it goes red on the day.
The opposite signal is another great intra-day indicator. When the stock has been trading lower than the day before and suddenly it crosses the previous close to become green on the day.
This alerts traders that there is more demand than supply for the stock and it the mean bias is still positive. On this side a lot of traders will buy a long position to be able to catch the rip. And off course the shorts are getting scared because the stock shows that it has enough strength to go green. So they’ll end up covering their short positions, another catalyst that will push the stock even higher.
So the previous close is often a great indicator that can help you find sweet spots to enter or exit a trade. I’ve found a very simple way to create a previous close study in ThinkOrSwim that will draw a line on the close price of the previous day on the intra-day chart.
You’ll be able to see at any moment how far the stock is away from the previous close. And more importantly you will be able to prepare yourself for any stock to cross the previous close line and go from red to green or the other way around.
When you use ThinkOrSwim as your platform you most certainly will know how to create a new study, so this is just a short step-by-step guide for you. If you’re not sure about how to create a new study in ThinkOrSwim you can find mer information about that in their Learning Center here.
Studies – Edit Studies – New (lower left of studies window) – clear the next screen and paste the code below;
I would suggest changing the name of the Study from whatever default ToS gives you to “PreviousClose”, just to keep it clear for yourself if you create more studies yourself.