Understanding Closing Bell and its Importance
A closing bell signifies the end of a trading session on a particular day. While there’s no actual bell that rings, a post-market report capturing the day’s key highlights is generated in the evening.
While in school, you must have heard the sound of a bell several times. It marked the end of one class and the start of another. Also, a long bell at the end of a day symbolised the end of your school day. In stock trading, a closing bell means the end of the trading session for that particular day. The tradition stems from one of the world's most reputed stock exchanges - the New York Stock Exchange (NYSE).
What is a closing bell?
While the term may make you feel that you will hear the sound of an actual bell at the end of a day’s trading session, in reality, it’s not. In the case of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), no actual bell rings. Instead, a post-market close report gets generated at the end of the day’s trading session.
Regular trading sessions of the BSE and the NSE end at 3:30 pm every day (barring muhurat trading), with the post-market close report being generated in the evening. Analysts, investment institutions, and various brokers create this report.
Importance of closing bell
The closing bell serves as a powerful analytical tool. It helps you:
Grasp the dominant market trends
The closing bell helps you have a granular view of stock market trends. It enables you to track the primary gainers and losers and deeply understand the larger market trends through expert opinion and commentary. By understanding these trends, you can understand market sentiments.
A quick read of the closing bell helps you understand whether markets were bullish or bearish. An upward surge in stocks’ prices represents bullish sentiments. On the other hand, a dip in prices reflects bearish sentiments.
Tailor your investment strategy
As the closing bell provides a snapshot of the market performance throughout the day, it helps you develop your investment strategy. You can tailor your investment strategy to a particular stock with the right dose of information. It also enables you to assess the valuation of your holdings and find out about their performance. That’s not all.
The closing bell allows you to reflect on the current day’s market dynamics and prepare for the next trading day. This involves setting new goals and identifying potential growth opportunities.
Identify rewarding sectors
This is another major benefit of the closing bell. It provides a comprehensive snapshot of the performance of different sectors during the trading day. An analysis of the closing price within specific sectors allows you to identify their strengths and weaknesses. This allows you to zero in on rewarding sectors investing in, which can help you in long-term wealth creation.
Serves as a reference price point for various stocks
The last traded price of various stocks is recorded at the stroke of the closing bell. These prices are their official closing price and serve as a reference point for you to gauge a stock’s valuation. A stock’s last traded price reflects the collective judgement of market participants regarding a particular stock and indicates how it’s likely to perform in the coming days.
Also, the BSE and the NSE derive their closing value from the last traded price of stocks. Analysts, policymakers, and investors closely monitor the closing value of the BSE and the NSE to determine market positioning.
Get updates on global events
The closing bell also helps you get key updates on global events that can impact your stock investment. In today’s interconnected world, global events can significantly impact your investments. It’s essential to keep a tab on them to be better prepared to protect your portfolio from any adversities arising because of them.
Should your investment decisions be guided only by the closing bell?
While the post-market report generated after the closing bell holds crucial details about the day's market performance, it’s essential to factor in your financial goals, risk tolerance, and long-term objectives and fortify the same with the report.
Using them in conjunction can help you make rational decisions, navigate volatility, and significantly mitigate risk.
The final word
Use the closing bell as an opportunity to understand market sentiments and frame a robust trading strategy. It’s a powerful tool in your arsenal to navigate stock markets and build wealth.