What is Previous Close? Why It Is Important for Day Traders
Previous close is yesterday's official closing price of a stock. When you open your broker app in the morning and see a stock quoted at Rs.1,500 with a green arrow showing +2%, the +2% is calculated from the previous close. It is the baseline against which today's price movement is measured.
Imagine checking the temperature every morning. You compare today's reading to yesterday's to know if it got warmer or cooler. Previous close works the same way for stock prices. It tells you nothing about where the price is going, but it tells you exactly how far it has moved from yesterday's end point.
How is previous close used?
- Percentage change calculation. The percentage change shown on any stock during the trading day is the difference between the current price and the previous close, expressed as a percentage. A stock at Rs.510 with a previous close of Rs.500 is up 2%.
- Gap analysis. If today's open price is Rs.520 and the previous close was Rs.500, the stock has a gap-up of Rs.20 or 4%. Traders study these gaps to understand overnight sentiment shifts.
- Circuit limit reference. SEBI's circuit limits for individual stocks are calculated as a percentage from the previous close. If a stock has a 20% upper circuit and the previous close was Rs.100, it cannot trade above Rs.120 today.
Why do intraday traders focus on previous close?
Intraday traders use previous close as their primary reference point. A stock trading above its previous close is considered to have positive momentum for the day. One trading below previous close has negative momentum. Many trading strategies use the gap between today's open and the previous close to determine the direction and strength of the day's probable move.
This is a simplified framework and does not guarantee any particular outcome. Markets are complex and many factors beyond simple reference to previous close affect intraday price movement.
What is the difference between previous close and today's open?
| Previous Close | Today's Open | |
|---|---|---|
| What it is | Yesterday's official closing price | First price of today's session |
| Determined by | VWAP of last 30 minutes yesterday | Pre-open call auction today |
| Can be same? | Yes, if no overnight gap | Yes, if no new information |
| Most useful for | Calculating daily % change, circuits | Assessing overnight sentiment |
You can view previous close, open price, and daily change for any stock at stockk.trade/products/equity.
Investments in securities market are subject to market risks. This article is for educational purposes only.
Frequently Asked Questions
The previous close on my broker app looks different from what I remember the stock closing at. Why?
If the stock had a corporate action like a bonus issue, stock split, or ex-dividend date after the market close, the previous close is adjusted to reflect that action. For example, if a stock closed at Rs.1,000 and declared a 1:1 bonus, the adjusted previous close the next day would be Rs.500. This ensures the percentage change calculation accurately reflects actual price movement, not the mechanical effect of the corporate action.
How are circuit limits calculated from previous close?
If a stock has a 10% circuit filter and the previous close is Rs.200, the stock can trade between Rs.180 (lower circuit) and Rs.220 (upper circuit) the next day. If the stock hits either circuit, trading can be halted temporarily. Circuit limits are set by SEBI and exchanges based on the stock's volatility category. Liquid large-cap stocks in the F&O segment typically have wider or no circuit limits.
Does the previous close change during the day?
No. The previous close is fixed once the trading day begins. It is yesterday's closing price and remains constant throughout today's session. Only the current price changes during the day. The next time previous close updates is when today's session ends and today's close becomes tomorrow's previous close.
Is previous close the same as the previous day's last traded price?
Not always. The official closing price is the volume-weighted average price of the last 30 minutes, not the last traded price. These can differ, especially for less liquid stocks. The previous close shown on platforms is the official closing price from the exchange, not the last traded price.
Can a stock open at the exact same price as its previous close?
Yes, though it is uncommon for actively traded stocks. If there is no significant overnight news, global markets are flat, and pre-open order flow is balanced, a stock can open at or very near its previous close. This is more common with less liquid stocks where few orders accumulate overnight.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
Indira Securities Pvt. Ltd. | SEBI Reg. No.: INZ000031633 (Stock Broker) | IN-DP-431-2019 (DP) | NSE | BSE | MCX | Indira Commodities Pvt. Ltd. - MCX: 46025 | NSE: 50001 | SEBI Reg. No.: INZ000038238 | #153/154, 4th Cross, Dollars Colony, J.P Nagar 4th Phase, Bengaluru - 560078 | [email protected] | [email protected]
