High Close

What Is a High Close?

A high close is a trading strategy that stock controllers utilize that involves making small trades at high prices during the last minutes of trading to give the impression that the stock performed all around well.

Figuring out a High Close

A high close happens toward the finish of a trading session in the financial markets. The closing price is the price of the last trade before the close of the trading session. These prices are utilized to make traditional line stock charts. They are additionally used to ascertain moving averages.

Since closing prices are widely followed, they can be controlled by traders to create the presence of a rally in a stock. This practice, known as a high close, is especially pervasive with micro-cap stocks that have limited liquidity (since less dollar volume is expected to move the price higher). Closing prices can likewise blow up the price of stock derivatives that could form the basis of that derivative. Likewise, mutual fund net asset values are additionally calculated utilizing closing prices.

The vast majority of the manipulation that happens through high closing occurs toward the finish of a month or quarter. Stocks with low levels of liquidity and a high level of information asymmetry are especially helpless to manipulation.

Special Considerations

A 2000 report called "High Closing" by Joel Fried, an economist at the University of Western Ontario, stated that there was "no material economic result" to a high close for however long there were several investors who acted, significance traded the stock, in view of fundamentals.

Traders ought to be careful about involving closing prices as a measure of miniature and small-cap stock victories and take a gander at candlestick charts and different indicators for added understanding. Given that closing prices are watched by most serious investors, stock controllers hope to make a buzz on a specific stock to attract investors.

High Close and Stock Manipulations

Stock manipulation is the act of falsely swelling or emptying the price of a security, a practice that incorporates the high close. These manipulations are a form of unlawful trading that outcomes in personal gain.

While unlawful, regulators frequently find these manipulations hard to identify. The controller generally stays with the stocks of smaller companies, as it's a lot more straightforward to control their share prices. Penny stocks offer more-continuous targets compared to medium and large-cap firms, which are all the more closely examined by analysts. Stock manipulation is likewise called price manipulation, market manipulation, or is just alluded to as manipulation.

Notwithstanding the high close, different sorts of manipulations incorporate the pump and dump, the most often utilized manipulation, which falsely swells a miniature cap stock and afterward offers out, passing on later followers to hold the bag. There is likewise the poop and scoop, the inverse of the pump and dump, which might be more uncommon in light of the fact that it is substantially more challenging to besmirch the reputation of a strong company with a decent reputation than to expand the reputation of an obscure company.

High closing is a form of stock manipulation and it can run afoul of regulators whenever manhandled.

Illustration of a High Close

Assume company ABC's stock price trades at $0.30 toward the beginning of a trading day. Throughout the previous ten weeks, its closing price has been $0.32. Trader XYZ takes a position in the firm, betting that its price will leap to $1 before very long. In the last minutes of closing for the stock market, XYZ purchases large amounts of ABC's stock. Since ABC as of now has limited liquidity, the trader's action siphons up its price to $0.60.

ABC's stock price has soar by 100 percent and different traders in miniature cap stocks heap into ABC subsequent to noticing the price action. The next day XYZ sells ABC in the market before purchasing it back again toward the day's end. XYZ rehashes the high close for two successive days, more traders purchase ABC, and, following two days, ABC's price breezes past $1.

Abuse of a High Close

In 2014, the SEC charged high-frequency trading firm Athena Capital Research with "putting a large number of aggressive, quick fire trades in the last two seconds of pretty much every trading day during a six-month period to control the closing prices of thousands of NASDAQ-recorded stocks."

The trades happened among June and December 2009 and Athena's intent was to support accessible liquidity for these stocks and push their prices up to benefit its position in these stocks. To achieve its goal, Athena utilized an algorithm, Gravy, that bought and sold orders for the stock. Sauce made up in excess of 70 percent of the total trading volume for these stocks during the last seconds of trading at NASDAQ, starting June 2009 and continuing till December of that year. Athena ended up paying $1 million as a penalty to settle the charges.

Highlights

• A high close is a stock manipulation tactic wherein small trades are made at high prices during the last minutes of trading.
• The utilization of a high close is especially famous in stocks with low liquidity and a high degree of information imbalance.
• Indicators like candlestick charts can assist investors with deciding whether there were any trading manipulations.