There is a popular saying in trading, “Amateurs open the market, but professionals close it.” That saying refers to the massive amounts of orders that brokerages have to fill at the open as a result of amateur traders and investors flooding them with buys and sells from news they heard in the afternoon or evening. Typically the professionals and institutions will wait for the day’s trend to develop before working out their purchase or sales price in the afternoon. However, fueled by fear and/or greed, the novice jumps in as soon as they can when the market opens or even in the pre-open.

When there is an influx of orders, the brokers will want to fill them as soon as they can since they earn their commission from the order flow. But this rush to fill the orders can exhaust the momentum and cause additional swings in the morning. As an example, let’s suppose the market looks bullish. You hear good news about a company and want to buy their stock. You must remember that you are not the only person who has heard this news nor are you the only person submitting a buy order.

In the pre-open, the exchanges look at all of the buy orders and sell orders being received and try to match them at an opening price that would best fill the greatest number of orders for the customers. This is great except, if the majority of buy orders have been satisfied in the pre-open, then how will the price rise when the markets open? Think about it. If everyone who wanted to buy just got into their stock, then there will not be the demand needed to push prices higher at the open.

Often, the large demand for stock will cause the price to gap up on the open into a level where many sellers are waiting. This area is called resistance. It is an area where prices had collapsed in the past due to an imbalance of buyers and sellers. If the demand is exhausted in this area, could the price go anywhere but down? This offers a great opportunity for an intraday trader who can identify the levels properly.

India Markets

Gaps are a normal part of trading. Traders can view these gaps as a great inconvenience or an excellent opportunity. The key is to see what the price action is telling you after it gaps. An interesting thing to see is whether prices were able to gap beyond the prior day’s price action. When I speak of the prior day’s price action, I am referring to the movement of price between the prior day’s high price and the prior day’s low price. If prices gap but do not open above the prior high or below the prior low, then the gap is called an inside gap and is likely to fill during that day.

India Markets

As an intraday trader, I can identify stocks that are exhibiting this pattern and plan trades to take advantage of the gap filling as long as the Nifty is also confirming the movement. This could also have huge implications for swing traders as a gap that occurs opposite to their position may be able to be ignored thus preventing panic and an early exit.

Should price gap above the prior high or below the prior low, then the gap is considered to be an outside gap. Outside gaps also offer interesting trading opportunities. They tend not to fill in the day but will change direction at the prior high or prior low. If a stock does gap above the prior day’s high, it is an outside gap and will likely only fill until it reaches the prior high which will act as support. If the markets are bullish, then expect a bounce here for a long.

India Markets

If the stock gaps down and tries to fill the gap, often the prior low will act as resistance and cause the stock to drop from that point thus identifying a shorting opportunity.

India Markets

There are always exceptions to these guidelines on gaps and traders should exercise caution and discretion when identifying trading opportunities surrounding gaps. Look at the broad market and also larger trends for guidance and above all, place protective stops to manage your trades. Trade safe and trade well!

Learn to Trade Now


Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.

Editors’ Picks

EUR/USD grapples with higher ground as Fed cuts weigh on Greenback

EUR/USD grapples with higher ground as Fed cuts weigh on Greenback

EUR/USD found the high end on Thursday, holding fast to the 1.1150 level, though most of the pair’s bullish momentum comes from a broad-market selloff in the Greenback rather than any particular bullish fix in the Euro.

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GBP/USD retreats below 1.3250 after BoE-inspired rally

GBP/USD retreats below 1.3250 after BoE-inspired rally

GBP/USD loses its bullish momentum and retreats below 1.3250 after touching its highest level since March 2022 above 1.3300 with the immediate reaction to the BoE's decision to leave the policy rate unchanged at 5%. In the US, weekly Jobless Claims declined to 219K.

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USD/JPY pops and drops on BoJ's expected hold

USD/JPY pops and drops on BoJ's expected hold

USD/JPY reverses a knee-jerk spike to 142.80 and returns to the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.  

USD/JPY News

Editors’ Picks

USD/JPY pops and drops on BoJ's expected hold

USD/JPY pops and drops on BoJ's expected hold

USD/JPY reverses a knee-jerk spike to 142.80 and returns to the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.  

USD/JPY News
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed. 

AUD/USD News
Gold consolidates near record high, bullish potential seems intact

Gold consolidates near record high, bullish potential seems intact

Gold price regained positive traction on Thursday and rallied back closer to the all-time peak touched the previous day in reaction to the Federal Reserve's decision to start the policy easing cycle with an oversized rate cut.

Gold News
Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

In its Consensus Layer Call on Thursday, Ethereum developers decided to split the upcoming Pectra upgrade into two batches. The decision follows concerns about potential risks in shipping the previously approved series of Ethereum improvement proposals.

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Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

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