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Traders need to learn the gaps and what are the trading opportunities associated with stock gaps at the open of trading. You need one thing to watch as you are looking at whether the gaps will fill quickly. The market makers will move a stock's price up or down before the market opens so traders need to be careful. After 30 minutes or so the stock price should stabilize and show some kind of trend. Stock Gaps are caused by imbalances between buyers and sellers. If there are no sellers and an overwhelming amount of buyers want into a stock, they will be forced to raise their bid to the area where there are sellers so they can satisfy their demand. The reverse is true when sellers overwhelm the buyers. This usually occurs when there is news on a business or the stock markets have some kind of economic news. In trading, a trader should center their decision to buy or sell based on the price in relation to supply and demand. Understanding gaps with the supply and demand type of trading offers a powerful price direction indicator. Breaking the demand level on the gap shows that the sellers could not locate any buyers willing to purchase at the former price level. This is extremely bearish and as a consequence, the price continues to slide. The opposite reaction would occur if the price gaps into, but not past a supply or demand level or support and resistance. The smart trader would have noticed that the price simply gapped up to prior supply and the sellers waiting there easily absorbed the buying pressure of the amateurs and sent price lower. Be sure to pay attention to where price gaps into and practice good risk management. Do not risk trading capitol and take positions before to the news announcements and do not let your emotions get the best of you and buy a stock before it hits a reversal area on the charts. Moving Averages can also confirm the trend. If the lines are sloping down with price, this can show that the current price itself below average, or falling. When current price is below both the 200 and 50 period which will show a down trend. They can also show a break in the trend if they are crossing over or hooking up. Traders can set their stop accordingly if they see the MA's changing trend and moving against the trade. Stock and Forex Opening Gaps Trading
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