Trading 101: The benefits of hard closesIntroduction:
In the world of technical analysis, traders are constantly searching for new and innovative methods to gain an edge in the market. One such technique that has gained popularity in recent years is the use of "hard closes." In this idea, we will delve into what hard closes are, why they are considered superior to conventional crossover methods, and the benefits and practical applications of incorporating hard closes into your trading strategy.
Understanding Hard Closes:
A "hard close" is a unique approach to analyzing price movements in financial markets. Unlike traditional moving average crossovers, which rely on the intersection of two moving averages, hard closes focus on the closing price of an asset. In essence, a hard close is an inflexible criterion that triggers a signal when the closing and opening price of an asset meets specific predetermined conditions.
How to Spot Hard Closes:
Let's say we have a level of resistance, and we are waiting for the price to break out so that we can long it, an up candle must open above the level of resistance, as well as close above it (because it also has to be an up candle). Similarly, if we are looking for a support breakout, we need a down candle to open below the level of support and close as a down candle. Hard closes can be used on both horizontal levels and trendlines.
Why Hard Closes Are Better:
Reduced Noise: Hard closes eliminate a significant amount of noise present in conventional crossover methods. By focusing solely on opening and closing prices, they filter out intra-period fluctuations as well as fakeouts and provide a cleaner and more precise signal.
Benefits of Hard Closes:
Risk Management: By reducing false signals, hard closes help traders make more informed decisions. This, in turn, enhances risk management strategies, preventing traders from entering ill-timed trades.
Versatility: Hard closes can be applied to various assets and timeframes as well as different kinds of levels, making them suitable for day traders, swing traders, and long-term investors alike.
Practical Uses of Hard Closes:
Trend Confirmation: Hard closes can be used to confirm the strength and direction of an existing trend. A bullish hard close, for example, can reinforce the conviction of a bullish trend.
Entry and Exit Points: Traders can employ hard closes to identify precise entry and exit points for their trades. This approach minimizes the guesswork involved in trading decisions.
Filtering Signals: Hard closes can be integrated into existing trading strategies to filter out less reliable signals, enhancing the overall effectiveness of the strategy.
In conclusion, hard closes represent a powerful and innovative approach to technical analysis that offers several advantages over conventional crossover methods. Their ability to reduce noise, improve accuracy, and adapt to different trading styles makes them a valuable addition to any trader's toolkit. Whether you are a seasoned professional or a novice trader, consider exploring the potential of hard closes to enhance your trading strategy and gain a competitive edge in the financial markets.
