Trading Previous Day's Close with Candlestick Confirmation

Trading the Previous Day's Close (PDC)

PDC (Previous Day's Close) is the closing price of the previous trading day. It is one of the most important levels on an intraday chart because many traders and algorithms watch it. When a new session opens, price often returns to test the PDC before continuing its trend. Therefore, the PDC can act as a natural support or resistance level.

How to Identify PDC and Candle Confirmation

To draw the PDC, open the daily time frame (D1), find the close of the most recent session, and draw a horizontal line at that level on a lower time frame such as H1 or M15. When price touches this line, do not enter immediately. Wait for a confirmation candle. A confirmation candle shows that buyers or sellers have regained control at that level.

For example, when price is falling and reaches the PDC, a Hammer or bullish Pin Bar suggests that buying pressure has arrived. A Hammer has a small body near the top and a lower shadow at least twice the body length. This shape shows that price was pushed down hard but then recovered close to the opening level.

On the other hand, if price is rising into the PDC and you see a Shooting Star or bearish Pin Bar, price is likely to be rejected. A Shooting Star has a small body near the bottom and a long upper shadow, showing that sellers pushed price down after an upward move.

How to Trade

Real Example

Suppose GBP/USD closed yesterday at 1.2700. This morning, price rose to 1.2730 and then pulled back to 1.2700. At this level, a Hammer candle appears. You place a buy order when the Hammer closes, with a stop loss below the low of the candle and a target at the recent high of 1.2730. This follows the core principle: respect an important level and wait for candle confirmation.

Common Mistakes