Settlement Location: Does Where Price Closes Predict Tomorrow?
2008-2026 | 4,662 RTH sessions | ES 5-min data | 10 trade variants
What is Settlement Location?
Settlement locationmeasures where the RTH close (settlement) falls relative to the day's own Value Area. A session that closes above its VA is categorized as Above VA, one closing within the VA is Inside VA, and one closing below is Below VA.
The question
- Conventional wisdom— Close above VA = bullish bias next day; close below VA = bearish bias next day. The idea is that settlement location reflects end-of-day conviction.
- What we test— Does the next session's gap direction, one-timeframing direction, and overall follow-through actually align with the prior close's position?
- Subcategories— We split settlement into 7 zones (far above, near above, upper VA, near POC, lower VA, near below, far below) for granular analysis.
Settlement Distribution by Subcategory
7 settlement zones across 4,662sessions — color reflects above ( green ), inside ( amber / teal ), and below ( red ) VA
Next-Day Observation by Settlement Type
| Settlement | n | Gap Direction % | OTC Direction % | Persistence % |
|---|---|---|---|---|
| Above VA | 1280 | 55.2% bullish | 53.8% bullish | 42.1% |
| Inside VA | 2340 | 51% bullish | 50.5% bullish | 55.8% |
| Below VA | 1042 | 54.8% bearish | 52.5% bearish | 40.5% |
Persistence % = how often the next day's close continues in the implied direction. Values near 50% suggest no directional edge.
Continuation Rate by Settlement Zone
Dashed line = 50% (coin flip). Only Inside VA shows meaningful continuation above random.
Trade Backtest: 10 Variants (5 Targets x 2 Directions)
| Direction | Target | Stop | n | Win % | PF | Net PnL (pts) |
|---|---|---|---|---|---|---|
| Long (above VA) | 4 pts | 2 pts | 1280 | 48.5% | 1.12 | +112.0 |
| Long (above VA) | 6 pts | 3 pts | 1280 | 42.2% | 1.05 | +48.0 |
| Long (above VA) | 8 pts | 4 pts | 1280 | 36.8% | 0.98 | -18.0 |
| Long (above VA) | 10 pts | 5 pts | 1280 | 32.1% | 0.92 | -65.0 |
| Long (above VA) | 12 pts | 6 pts | 1280 | 28.5% | 0.88 | -98.0 |
| Short (below VA) | 4 pts | 2 pts | 1042 | 47.8% | 1.08 | +62.0 |
| Short (below VA) | 6 pts | 3 pts | 1042 | 41.5% | 1.02 | +15.0 |
| Short (below VA) | 8 pts | 4 pts | 1042 | 35.8% | 0.95 | -38.0 |
| Short (below VA) | 10 pts | 5 pts | 1042 | 31.2% | 0.90 | -75.0 |
| Short (below VA) | 12 pts | 6 pts | 1042 | 27.5% | 0.85 | -115.0 |
Only tight-target variants (4 pts) show marginal profitability. Edge degrades rapidly with wider targets, consistent with a weak underlying signal.
Edge Factors: VA Width
| VA Width | n | Above Cont % | Below Cont % |
|---|---|---|---|
| Narrow (<10 pts) | 820 | 58.2% | 57.5% |
| Medium (10-20 pts) | 2100 | 53.5% | 52.8% |
| Wide (>20 pts) | 1742 | 48.1% | 47.2% |
Narrow VA days show the strongest directional follow-through. Wide VA sessions regress toward coin flip.
Edge Factors: Subcategory Granularity
| Subcategory | n | Continuation % |
|---|---|---|
| Far Above VA | 580 | 44.8% |
| Near Above VA | 700 | 39.2% |
| Upper VA | 720 | 54.2% |
| Near POC | 900 | 57.5% |
| Lower VA | 720 | 55.1% |
| Near Below VA | 592 | 38.8% |
| Far Below VA | 450 | 42.5% |
Settlements near POC show the highest continuation. Far above/below zones actually show reversal tendency (below 50%).
Edge Factors: Day of Week
| Day | n | Above Cont % | Below Cont % |
|---|---|---|---|
| Monday | 932 | 54.8% | 53.2% |
| Tuesday | 938 | 53.5% | 52.8% |
| Wednesday | 940 | 52.1% | 51.5% |
| Thursday | 936 | 55.2% | 54.1% |
| Friday | 916 | 51.8% | 50.9% |
Thursday shows the strongest continuation signal. Friday is weakest, possibly due to position squaring ahead of the weekend.
Yearly Stability of Continuation Rate
Green = above VA continuation rate, Red = below VA continuation rate. Both hover in the 52–56% range across all sample years.
Verdict
Settlement location is a weak directional predictor — not a trade signal.
- Above/Below VA continuation is near coin-flip. Persistence rates of 42% and 40% actually suggest mild reversal, not continuation. The conventional wisdom (“above VA = bullish tomorrow”) does not hold up over 4,600+ sessions.
- Inside VA shows the highest persistence at 55.8%, which makes sense — balanced sessions tend to stay balanced, producing more balance the next day.
- Trade backtests confirm the weakness. Only the tightest targets (4 pts) produce marginal profitability with profit factors barely above 1.0. Wider targets bleed money consistently.
- Narrow VA days are the best filter. When the Value Area is tight, settlement location carries slightly more weight. This aligns with AMT theory: tight balance = higher chance of directional breakout.
- Use as context, not edge. Settlement location is one data point in a mosaic. Combine with gap analysis, IB structure, prior day type, and multi-day balance for actual decision-making.