His name was Prince. The Irish Terrier who somehow crossed the English Channel and found his owner — a British soldier — in his foxhole fighting WWI in northern France.
Heartwarming stories of pets travelling vast distances to find their owners or return home are actually common. Scientifically it’s tied to an amazing sense of direction. Emotionally it’s driven by a connection with those they love.
Like a dog finding his way home using scent, the daily settlement creates a homing point for price during the coming day. You can use this reference point to set a profitable plan for your trading day.
The scent that guides price for an entire day
Otherwise known as a ‘homing instinct’, dogs and cats are known to find their way home with relative ease within a range of about 7.5 miles — using scent.
The close of each trading day leaves a signature scent in the form of daily settlement. This is the final print, or trade, of the day.
Whether you like it or not, its draw is strong and can’t be ignored. This data point will hang in the air throughout the coming day influencing price.
You can find closing settlements posted online and also at the CME (Chicago Mercantile Exchange) at the close of each day. In fact, the CME provides daily historical settlement data for volume, open, close, high and low for just about every market.
But knowing what the settlement is wouldn’t be enough for our buddy Prince, and it shouldn’t be enough for you. Understanding how this important marker is used in evaluating the coming day’s price will help you profit.
How to fill your day with profits using daily settlement
It is a widely accepted theory that dogs and cats have a stronger sense of the earth’s magnetic fields. It’s this superior sensitivity to magnetic fields that serves as an internal compass of sorts when covering vast distances.
Closing settlement is also a magnetic force that guides the following day’s trading and can’t be ignored. As price finds its way through fluctuations driven by volume, you can expect the prior day’s last trade to be a factor.
When planning your day, factor closing settlement into your strategy knowing that:
- Opens above the settlement signal bullish pricing and closes below indicate bearish trading activity
- This will be a zone for support and resistance, as price tests and/or confirms the final print throughout the day
Understanding this at the start of each trading day gives you an important tool in mapping your strategy and evaluating price.
Why factoring daily settlement equals profitable entries
The legend of Prince has him bounding across a battlefield, dodging bullets and bombs, determined to make his way. In recent years, a Duke professor came up with a theory called PSI — predicated on an almost psychic ability animals have to find an owner they’ve been separated from.
Psychic or not, price always seems to find its way back to prior close. Marking this at the start of each trading day will give you a confirmed reference point when evaluating opening gaps and price action.
Note the ES 2-minute chart here. Using closing settlement as our guide, we see that:
- Below = Bear: Price gapped down presenting a short-term short opportunity – and even after a brief reversal, still went down in the spirit of the opening gap.
- Drawn Back: Price eventually comes back and oscillates right around the
closing price. As it tests this level, it’s serving as a useful reference for support and resistance along the way.
Adding the settlement line will bring additional depth to your confirmation process when seeking a high probability trade.
Evaluating the scent of settlement with all your trading senses
For a dog or cat, finding their way home over unfamiliar terrain must require a combination of raw instinct and a natural compass. Especially when faced with uncertainty.
As a futures trader, you have both in the form of experience and data.
For instance: Openings can be chaotic events, influenced by news and other events. Say the opening price separates from the daily settlement with a gap — and makes a run in the other direction.
You have several supporting markers (senses) that will show the way until the dust clears. To start:
- Volume levels will tell you if the market is seeking a new value or simply testing the edges of supply and demand.
- Fair price, the point at the center of consolidation, will reveal what the institutions are committed to protecting.
Eventually as the day takes shape, you can bet that the settlement line will play its natural role in influencing price.
Take advantage of this important trading sense. Mark the closing settlement before open and watch as price eventually returns home after gaps or fluctuations — just like Prince.
Use this to plot your entries, knowing that above the close is bullish, below is bearish, and that price will be tested throughout the close of the day.
Before long you and daily settlement will be inseparable, with profits naturally coming your way.