what causes gaps in a stock? can any of them be predicted ahead of time? I am swing trading some and having a market gap against a position looks like it can screw me up real bad.
what causes gaps in stocks?
- Thread starter countercountertrend
- Start date
great question. i found it as below:
Causes[edit]
Causes[edit]
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Gaps occur between the closing price on one day and the opening price tat the start of the next day. Its not technically the first quote of the day nor the price of very first trade of the day, so the precise opening price should always be taken with a pinch of salt.
But gaps occur and they are very useful indications of buying and selling pressure. As you're a swing trader, Alan Farley has written in (exhausting) detail about using gaps in various ways.
Don't let the worry of adverse gapping prevent you from holding overnight or over weekends, the greater risks of both capital loss and opportunity loss come from daytrading. Anyway, gaps can also work for you.
But gaps occur and they are very useful indications of buying and selling pressure. As you're a swing trader, Alan Farley has written in (exhausting) detail about using gaps in various ways.
Don't let the worry of adverse gapping prevent you from holding overnight or over weekends, the greater risks of both capital loss and opportunity loss come from daytrading. Anyway, gaps can also work for you.
Gaps can happen at any times. e.g. news pending or after trading is resumed after volatility halts.
A gap is caused because...
1. There is a period of time where the market is closed with no trading in that stock. (If the market traded 24/7, there would be nearly zero gaps.)
2. "Something" happened while the stock/market wasn't trading to alter (at least temporarily) the psycho about that stock. Could be just about anthing... news about that company or the economy, news about interest rates from the Fed or other CBs, something that happened or was said in Asia or Europe.
While gaps infer something about the altered psycho of the stock/"market in general", they mostly occur at the opening. You know, when the "dumb money" is most active.
Are they predictable? Don't think so.
Are they playable? Yes, but usually not with the "high reliability" one would hope.
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Earnings date can be volatile. That’s one way to avoid gaps. Some large caps have so many analyst on them that gaps aren’t as frequent. Some small caps can get wild every quarterly earnings release. On a chart you can pretty much see every earnings with huge gaps either way.
Some are from surprise news. Merger announcements , bad news( Boeing planes being grounded) , etc.
Personally I avoid entering a trade near earnings or make sure I got half off at least if I’m still in a trade going into earnings.
I’ve made more from gaps up being mostly on the long side then gaps down. I’ve had one position in 4 years that tapped down 30 percent. It hurt but not account devastating.
Some are from surprise news. Merger announcements , bad news( Boeing planes being grounded) , etc.
Personally I avoid entering a trade near earnings or make sure I got half off at least if I’m still in a trade going into earnings.
I’ve made more from gaps up being mostly on the long side then gaps down. I’ve had one position in 4 years that tapped down 30 percent. It hurt but not account devastating.
Yes, of course, that's how everyone here on Elite Trader became a billionaire. You'll figure it out in no time, so welcome to the club.
There are numerous billionaires on ET. Nearly of all of the them are billionaires in Venezuelan Pesos.
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Good points.Earnings+ stupid stuff cause big gaps - like FB spilling data-which did not really bother me. BUT i remember it bothered the market/ knocked the price down
.Not even a 200 Peso guy here this week!!
Gaps, are cause by after or Pre Market trading, 30mins after the regular market closes ( maybe been a while ) and 1 hour before, you can join in but limit orders only, it's a cheaty way to move the stock price huge with next to no volume, as long as people are prepared to trade at the new opening price.
Gaps, ruined swing trading, why I stopped trading stocks as over night = doomed!!