What is Gap Stock Exchange?
This is a term that stands for interval or interruption. In the world of finance, gap is an absence of quotation for a stretch with an alteration in the listing price when a brand new one is available again on the market.
The stock market gap is a very interesting concept and appears when the demand is inadequate for the supply of a certain financial tool and/or vice versa. Thus, the gap stock exchange is just basically a gap between supply and demand.
Causes of Gap in the stock market or gap en bourse charts—
The gaps mainly occur due to two pivotal factors, them being:-
- Trading schedules
- The news announcements that makes upheavals in the market.
Gaps of the first kind are foreseen to an extent, while gaps that occur due to news announcements simply aren’t. For example:-
Opening gap on the DAX 30 is when the contract is available to dealers from 8am to 10pm yet when it reopens in the morning, the price may not be that of the day before at 10pm.
Usually though, gaps occur mainly between the Friday evening closing and the Sunday evening opening.
Gaps that occur due to news announcements cannot be anticipated at all and they usually occur due to past wars, attack etc.
The bottom line, however, is that gaps, for the most part, cannot be predicted which is exactly why money management is an important aspect in the world of gap exchange.
What solution to trade with the Gap opening exchange?
You may cancel order while waiting on the gaps. This step will protect you from the losses that occur if you have pending orders. There are many ways in which you might take advantages of this as well. This can be done with intelligent strategies, such as buying when technical factors predict a gap on the next trading day. For example, traders might buy stock after-hours when an optimistic earnings report is announced, predicting a gap on the next trading day. They might also sell or buy into extremely liquid positions at the start of a price movement, hoping for a continued trend. They may buy a certain currency while it is gapping up very fast on little liquidity as well as when there is no substantial resistance overhead.
Some even fade gaps in the very contrasting direction once a point, high or low, has been established (often through varied forms of technical analysis). For example, upon hearing some speculative piece of report, if the stock gaps up, the experienced traders might fade the gap by shorting the stock. Lastly, traders might buy in when after the gap has been filled, the price level reaches the prior support.
Trading with gap trading isn’t an aspect that most traders are well versed at for it is terribly tricky but if you know which gap trades might take place and which won’t, then it should be an easy task for you. If you decide to go for it, you must try to spot the various gaps on the trading platform as well as observe the price behaviour after gap-formation. Keep the risks under your control and you will see how it works in your favour!