A MoC Imbalance, or Market-on-Close order imbalance, occurs when there is a significant disconnect between MoC sell orders and MoC buy orders at the end of a trading day.
MoC orders are locked in during the last few minutes of the trading day and executed automatically at market price, so MoC imbalances can cause wild fluctuations in the final closing price.
These imbalances can be used by traders to exploit potential price movements in stocks and other financial instruments.
Volume indicators, such as the Volume at Price Indicator, are extremely useful tools for studying and exploiting these imbalances at market close.
These imbalances can also provide significant information about the next day’s price action, which means they can be used in opening trading strategies, such as the Gap and Go Trading Strategy.
Key Takeaways
- A MoC Imbalance occurs when there is a significant gap between the volume of MoC buy orders and MoC sell orders at market close.
- The impact of these imbalances on price levels can be exploited to perform volume-based trades around market close or used as information for setting up opening trades the next day.
A Breakdown of a MoC Imbalance
A MoC Imbalance is the product of the MoC order system.
This system allows market participants to put in market orders (orders that execute at market price) that do not execute until market close.
There are a variety of reasons that market participants use MoC orders, but most of the volume is from large financial institutions, such as mutual funds or market makers, that are balancing broad portfolios every day at market close.
When there is far more buy volume than sell volume, or vice versa, then there is an order imbalance.
Because these trades are locked in a few minutes before closing and execute at the market price level regardless of price changes, any imbalance can lead to extremely variable price action for the closing price.
How to Calculate a MoC Imbalance
Most trading exchanges will offer MoC data for a fee.
Then it is simply a matter of comparing the total volume of buy orders and sell orders.
MoC Imbalance =
- Total MoC Buy Order Volume > Total MoC Sell Order Volume
or
- Total MoC Sell Order Volume > Total MoC Buy Order Volume
There will always be some imbalance between buy order and sell order volumes, so each trader needs to determine for themselves what volumes constitute an imbalance.
However, there are numerous tools available that will find the MoC order volume imbalance and then allow the trader to set relative or absolute values as a trigger for an imbalance alert.
How to Use a MoC Imbalance
Traders can access MoC volume information for a fee on most exchanges, which allows them to set up trades that exploit the impact of any imbalances on price levels.
The obvious reasoning is that an excess of order volume in one direction will drive the price in that direction.
- If there is an excess of buy order volume, the stock price will rise.
- If there is an excess of sell order volume, the stock price will fall.
Market Close
The most obvious use for a MoC Imbalance is for traders to set their own orders to exploit the result of the imbalance.
MoC orders are locked in 5 minutes to 10 minutes before the market closes depending on the trading exchange.
Therefore, traders can examine the MoC data once the lock period has begun, and still execute a favorable trade before the market closes.
They can then close their profitable trade on the next market open once the imbalance has turned the stock price in their favor.
Market Open
The more subtle use of an imbalance is as a source of information for the next day’s price action.
Some traders use MoC orders to mask their intentions or protect information from other traders, such as their positions on earnings releases.
While other traders can react to a trade while the market is open, they need to wait until the next trading day once the market closes.
Therefore, MoC imbalances often betray trading intentions that can be exploited the next day with opening range strategies.
Moreover, it can be difficult to find and exploit imbalances in the small window between the lockdown and the actual market close.
Therefore, many traders look for imbalances overnight and then exploit the resulting price action the next day when the market opens.
The Best Tools for Trading a MoC Imbalance
MoC Imbalance data requires a subscription from the exchange, and many trading platforms will not offer access to these subscriptions.
Traders who are serious about exploiting these advanced techniques need access to cutting-edge market research tools that offer access to these types of data subscriptions.
Our top recommendations for market research tools for retail traders are:
Exploiting imbalances is a technique that is perfected over time through extensive analysis and practice.
Developing these types of in-depth skills requires a trading journal where past trades are tracked and analyzed for useful information and insights.
Our top recommendation for trading journals for retail traders is:
