A gap is a change in price levels between the close and open of two consecutive days. A gap up open occurs when the opening price is greater than the previous day’s closing price. A gap down occurs when the opening price is lower than the previous day’s closing price.
Several things can cause gap openings such as an earnings report being released after the stock market close on the previous day or a news event. If there was a positive earnings surprise, many traders might place buy orders for the next day. This could result in the price opening higher than the previous day’s close.
The magic of trading the gaps is that they are like an open window, and like all windows, at some point they are going to be closed. The key, then, is to be able to accurately predict when the day’s trading gaps (window) are going to be filled (closed).
Find Stocks Gap
The best free tool to trade opening gaps is on Barchart. To find gap up stocks go here. To find gap down stocks go here.
Day Trading Gaps
All day trading gaps strategies are based on time. Some day traders us the first 30 minutes of trading. Others use 1 or 2 hours after the market opens. The idea is to short a gap up, or go long a gap down, after a certain amount of time.