One way to help judge supply and demand for a stock is to pay attention to the closing range, which indicates where a stock closed within the price range for the day/week/month. Closing near the high indicates buyer demand for the stock. When near the bottom of the range, there was more selling than buying.
Closing Range Considerations:
• The closing range indicates where in the range (day/week/month) a stock closed.
• Higher in the closing range, buyers were in charge. More sellers than buyers when lower in the range.
• A closing range of 40%+ is supportive action.
• Even if a stock closes down for the day, if the closing range > 40%, that is still considered a sign of strength.
The true range takes into account the previous daily or weekly close. This provides another perspective as it relates to the current action, accumulation or distribution as well as the overall trend. The examples below will provide more specifics.
Closing Range
Using a stocks low, high and last (closing) price, you can calculate the closing range as follows:
Last - Low / High - Low
A daily chart for ETSY is shown below. Notice the closing range of 24% and how it is calculated.
Closing Range on Weekly Chart
The calculations are the same for a weekly chart. Here’s ETSY and its closing range for the week of November, 9th, 2020.
Note: In MarketSmith, during trading hours, the closing range is updated in real-time.
True Range
There are times that the closing range doesn’t give the whole picture. For example, if there is gap up or down from a previous day or week, the gap is not considered in determining the closing range. This is where the true range comes into the picture.
The math to determine the true range is the same as the closing range. Yet, the former integrates the close of previous day/week/month as part of the calculation.
In the figure below for MasterCard (MA) notice that the closing range for the week was only 28%. However, when using the true range, MasterCard finished up 49%.
Sometimes there isn’t an obvious gap up or down from one day/week to the next. However, it can still be insightful to look at the true range on either the daily or weekly timeframe.
For example, in a recent tweet from Ajay Jani he pointed that the closing range for ETSY was 56%, certainly a positive sign. However, Ajay also mentioned that when you consider the gap down from the high of the previous week, the true range is 35%, which tells a different story.
As you look at where a stock closes for the day or week, the true range can provide another perspective. Even though it can be insightful to do the math to determine the true range, often times a quick glance at the closing of the previous day or week will provide insight as to whether the stock is under accumulation or distribution.