How to Interpret the Settlement Period on a Daily Chart

Interpret-candlesticks

Happy Friday!

This week’s question comes from Tim, who asks:

You’ve said in the past that the activity between 4 pm and 5 pm New York time is telling. I would like to know how to interpret this activity.

I love this question for two reasons:

  1. The answer is incredibly straightforward and easy to understand
  2. The result can make you profitable

That may sound too good to be true, but I assure you it isn’t. My students can attest to the power of not only using a New York close chart but also learning how to read it.

I won’t go into much detail today about various candlestick patterns as I’ve written about them previously. Instead, I’m going to outline a few ways the daily chart can improve your trading. More specifically, how you can use the last hour of the session to make informed decisions.

For more on using a New York close chart, feel free to read this post and then come right back.

Let’s begin.

The Devil Is in the Details

What do you see when you look at the EURUSD candlestick chart below?

EURUSD daily chart

Some may see swing highs and lows or perhaps buyers and sellers. Others may just see a bunch of candlesticks.

While those observations aren’t necessarily wrong, I see something else.

To me, the chart above shows order flow. It tells me where market movers (banks, hedge funds, etc.) are positioned.

Before we move on, have you ever heard the saying, the devil is in the details?

If not, it means that something may seem simple at first, but the details are either complicated or hard to see and could cause problems.

Think about that for a moment. It’s the perfect description of a candlestick chart.

On the surface, the EURUSD daily chart above is simple. We have candlestick bodies, both white and black, and upper and lower wicks. That’s it!

So where are those hard to see details that could cause problems?

Those details are in the order flow. Namely, the exchange between buyers and sellers at or near a key level just before the New York close at 5 pm EST.

If you’ve ever watched a market rocket beyond a key level intraday only to spring back before the close, you know what I’m referring to.

This last hour of trade can mean the difference between a bullish signal and a bearish one.

The most common candlestick pattern that emerges from this type of activity is the pin bar. It’s what I started with in 2010, and I still use it today.

Settlement Matters

If you’ve been a reader of this site for a while, you may have seen me reference something called settlement. This is how I refer to the last hour of each session.

It’s the period between 4 pm and 5 pm EST. During this time, you’ll often see buyers and sellers jockey for position, particularly when the price is near a key level.

It’s like the last 10 minutes of a sports match. You get to see which side prevails and that alone can be indicative of what happens next.

This is why a daily pin bar at a key level can be so powerful. It tells you whether buyers or sellers are in the driver’s seat. 

I’ve listed these brokers before, but for those looking to switch to a New York close chart, here are a few options:

  • Oanda
  • FXCM
  • MB Trading (TradeKing)
  • AxiTrader
  • Pepperstone
  • FxPro
  • GKFX

Feel free to post any additional ones in the comments below. Apart from Oanda, I can’t speak to any of the brokers listed above.

A Behind-the-Scenes Look

behind-the-scenesWhen I began trading way back in 2002, I started with penny stocks. Well, the truth is I had made my first trade before I was legal with my mom as the custodian of the account.

But that’s a story for another time.

In the equity markets, there is something called a level 2. It’s a subscription-based service that shows the bid and ask prices and quantities for a given asset.

While it isn’t perfect by any means, I don’t need to tell you how advantageous this can be. Even if it’s not 100% accurate or transparent, having some idea as to the location and quantity of orders can give you an edge.

We don’t have a service like that in the Forex market. Mostly because unlike the equity markets, Forex is decentralized.

But here’s the good news…

You don’t need it! If you learn to read daily candlestick patterns, there’s no need for services like the one I just mentioned.

The catch here is that you have to wait for the New York close at 5 pm EST. Only then will you be able to get a good read on whether buyers or sellers are in control.

So how do you do this?

Once you’ve drawn your key support and resistance levels (which should always be the first step), you simply wait for a price action signal to develop.

As I mentioned above, this usually comes in the form of a pin bar.

Of course, things like momentum and favorable risk to reward ratios come into play. But I’ve written about those topics before.

Right now we’re only concerned with how to interpret the settlement period on the daily time frame. And to do that, you need accurate support and resistance levels, a firm understanding of candlestick patterns and quite a bit of patience.

That’s all there is to it.

When in Doubt, Wait It Out

trader-waitingIf you’re ever unsure about a particular trade setup or directional bias, the best thing you can do is wait for the market to close at 5 pm EST.

By waiting to see which side is victorious, you stand a greater chance of profiting. You may even decide the trade idea isn’t worth the risk, in which case you just saved yourself from a potential loss.

One of the primary reasons most traders don’t like to wait for the session close is the fear of missing out or FOMO, as some traders have come to call it.

But here’s the thing…

Your number one job as a trader is to protect your capital. Making money always comes second. So if you choose the riskier option of not waiting for the session close, you’re violating the number one rule.

Now, there are times where a 4-hour or perhaps even a 1-hour entry is acceptable. But we’re talking about situations where you’re unsure as to whether a trade idea is valid.

In those moments, waiting for the close at 5 pm EST is by far the best thing you can do. It will give you more confidence in the pending setup and help you protect your capital at the same time.

That sounds like a winning combination to me.

Final Words

Trading from a New York close chart offers a clear view of what happened during the session. It is without question one of the most important things you can do as it will allow you to make more informed decisions when trading price action.

If you find yourself questioning the validity of a nearby key level, let the market work for you. Wait for the close at 5 pm EST to see whether buyers or sellers have won the day or if the level is even worthwhile.

In a sense, it’s like having x-ray vision while trading. By waiting for a session to close, you get to see where the big players are lurking.

And once you’re able to see where they’re positioned, trading price action becomes effortless.

Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

Leave a Comment:

28 comments
MIMI says

Hi Justin, thanks for always explaining in a simple manner. Just a question on the Daily market close – does the same apply with a session close for London as an example even though the close overlap with the open of US session? There are some good moves when market sessions overlap/close/open and volume entering/exiting the market. Yes, the Daily candle closes when the US session close daily and I never ignore the Daily charts to see how the market ends at each trading day, but would appreciate your thoughts on the open/overlapping/close of sessions during a trading day. Thank you!!

Reply
    Justin Bennett says

    Mimi, to some degree yes. But because more time and orders go into forming a daily close, it’s the most important of the day.

    Reply
Geoff Moore says

I have been reading your articles for some time now and I have learned quite a bit and I want to thank you for that. My broker is Tradersway and they use NY close. Like you said once you have used the 5PM close you would never go back to GMT close. One think I don’t like is that they close at 4PM est on Fridays. I don’t know of any other broker that does that. Other than that I have no complaints. Thanks Geoff

Reply
    Justin Bennett says

    Hi Geoff, a New York close does make a world of difference. It’s curious that your broker would close early on Friday. That sounds like it would make your weekend analysis a bit more difficult, particularly on days where NFP is a factor.

    But as always, the only thing that matters is how well it works for you.

    Reply
Tony says

One of the biggest problems I have with forex is the prices are so long and difficult to remember unlike stocks and even indices. How do you get around this problem

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Brian says

Dear Justin,
Kudos for your very informative article,
A question about the settlement period,
Lets say a bullish pinbar has been formed on the daily chart at a Key Level and the last four(4- hour) session or Candle indicates some signs of bearishness..how do you interpret this?Which is the best way to enter the market?

Reply
    Justin Bennett says

    Brian, it depends on several factors. For instance, is the momentum bullish or bearish? How confident are you in the key level? What’s the risk to reward ratio?

    Those are all things you’d need to consider.

    Reply
N. A. says

Hi, thanks for nice article. Please could you tick on the charts the levels and the Pin bar you mentioned about? Thank you

Reply
    Justin Bennett says

    The chart in this post was just to show candlesticks, not necessarily pin bars. But I did link to the lesson on pin bars above (orange text).

    Reply
Biljana says

Thoese that mean, that if price falls around 60-100pips of the daily top(Ny 4pm-5pm),it will return above the top,or minimum 30-50 pips?Thank you 🙂

Reply
PAULFOREX says

JUSTIN YOU KNOW WHAT? YOU ARE THE BOMB AS FAR AS FOREX TRADING ANALYSIS IS CONCERNED. SO I HAVE NO QUESTION AS I HAVE BEEN FOLLOWING YOUR OVER 3YEARS NOW AND I HAVE READ AND WATCH YOUR PIN BAR VIDEOS, THOUGH I LEFT YOUR MEMBERSHIP WHICH AM REGRETTING NOW. SO KUDOS TO YOUR GOOD WORKS.

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Dan says

Hi Justin!
Thanks for such a good post!
I have a practical question re last friday’s trading on EUR/USD (you attached screenshot at the top of the article). As you remember US NFP data was posted that day and the data was very good to move the market to 1.05 level again. However, you know what happend, the price moved almost to 1.07, which means that it was a pure manipulation or stop hunt, call it like you prefer. So, the whole day was just a pure bullish momentum. But during the last hour of the session the price retraced winning back about 30 pips. So my question is that it proves manipulation and indicates the shift from bullish to bearish momentum. Is my understanding correct? If not it would be great to get your thoughts on that situation.

Reply
    Justin Bennett says

    Dan, not necessarily. The way I see it, the pair broke a key level. The selloff into the close you refer to was most likely profit taking before the weekend.

    Reply
Thony says

What is the best way to place a most accurate trend line

Reply
michael walker says

I suppose that is where you find pin bars at support and resistance.Would’t it be better to look at 4H chart at the same time to get more detail of the pattern of the struggle between buyers and sellers and the daily only might give a biased picture

Reply
    Justin Bennett says

    Michael, the 4-hour chart also offers a great view of the market. However, I wanted to focus on the daily time frame in this post because it provides a snapshot of the entire session.

    Reply
Jeff Poirier says

Great feedback on the question Justin. I have a question myself,how can I tell when a daily close closes below or above a trend line if it is going to carry on with a new trend or go back into the original trend line. Any feedback would be appreciated. Thank you and. I’ve picked up a lot of great stuff as a member here thx again Jeff

Reply
    Justin Bennett says

    Thanks, Jeff. Pleased to hear you’re enjoying the content. To answer your question, you will never know for sure whether the market will sustain a trend line break.

    But an effective way to determine the probability is a study of market trends (momentum). This post should help with that: http://bit.ly/2kcBrTr

    Reply
Thambirajah Yogarajah says

Hi Justin
In your article about settlement period you have quoted “you need accurate support and resistance levels”, I understand that the support and resistance are ares rather than accurate levels, In this case if the closing candles are within the area how would you identify if the candle has closed above or below support/resistance level..

Kind Regards
Thambirajah

Reply
Genius says

I commend your efforts in bringing the best out of us. You have inspired my moving from day trading to swinging; it’s been the best. Thank you.

Talking of the closing candle, Gold (you may not be trading it) formed a pinbar off 1200.00 major Psychological Level on a daily closing basis, and near the 50% Fibo retracement level; can I take this as the return of the Bulls?

Reply
    Justin Bennett says

    Congrats on the recent transition. You’re right – I don’t trade gold, so I won’t be of much help on that one.

    Reply
HM says

1) waiting for 5 pm New York time for trading, do you mean do the trading at Asia session
2) from 5 pm New York time session, how do we see seller and buyer positioning?

Reply
    Justin Bennett says

    Sure, if that’s when a quality setup materializes. But you don’t need to trade during a specific session. The idea is to use the information from the entire day to confirm or negate a particular idea.

    Reply
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