The Trade Summary

The Indian stock market is open from 9:15 AM to 03:30 PM. During the 6 hours 15-minute
market session, millions of trades occur. Think about an individual stock – every minute, a
trade gets executed on the exchange. As market participants do we need to keep track of all
the different price points at which a trade is executed?

To illustrate this further, let us consider this imaginary stock in which many trades exist.
Look at the picture below. Each point refers to a trade being executed at a particular time. If
one manages to plot a graph that includes every second from 9:15 AM to 3:30 PM, the graph
will be cluttered with many points. I’ve tried to represent this in the chart below –

The market opened at 9:15 AM and closed at 3:30 PM, during which there were many trades.
It will be practically impossible to track all these different price points. One needs a summary
of the trading action and not the details on all the different price points.

We can summarise the price action by tracking the Open, high, low, and close.

Open Price – When the markets open for trading, the first price a trade executes is called the
opening price.

The High Price – This represents the highest price at which a trade occurred for the given
day.

The Low Price – This represents the lowest price at which a trade occurred for the given day.

The Close Price – This is the most important price because it is the final price at which the
market closes for the day. The close indicates the intraday strength and a reference price for
the next day. If the close is higher than the open, it is considered a positive day; otherwise
negative. Of course, we will deal with this in greater detail as we progress through the
module.

The closing price also shows the market sentiment and serves as a reference point for the next
day’s trading. For these reasons, closing is more important than the opening, high or low
prices.
The main data points from the technical analysis perspective are open, high, low, and close
prices. Each of these prices has to be plotted on the chart and analyzed.

Key takeaways from this chapter

1. Its scope does not bind to technical Analysis. The TA concepts can be applied across
asset classes as long as it has time-series data.
2.  TA is based on a few core assumptions.
a. Markets discount everything
b. The how is more important than the why
c. Price moves in trends
d. History tends to repeat itself.
3. A good way to summarize the daily trading action is by marking the open, high, low,
and close prices, usually abbreviated as OHLC