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Saturday, April 7, 2007

What is Gap Trading?

Gap trading is one another trading strategy, in which the trader trades stocks (or other product) according to the gap. A gap defined as the difference between the closing price of the previous day and the opening price of the day. The gaps can be of 4 types, each have a long and short strategy making the total number of strategies 8.

The types of Gaps are
  1. Full Gap Down – Opening price is lower than the previous day’s lowest price.
  2. Full Gap Up – Opening price is higher than the previous day’s highest price.
  3. Partial Gap Down – Opening price is between the previous day’s close and lowest price.
  4. Partial Gap Up – Opening price is between the previous day’s close and highest price.
Normally, gap trading starts an hour after the opening of market, for giving the stock price time to settle down. The trading systems with intraday charting capabilities can easily be used to find suitable gap stocks. Although gap trading is practiced mostly for day trading, it can also be used for swing and position trading by taking weekly or monthly gaps. The main factor which determines the profit/loss in gap trading is news from various economic/political fields.

This information is provided by NobleTrading.com, a worldwide brokerage firm, offering direct access services for online stocks trading, options trading, futures trading, commodities trading and forex trading on a variety of trading software platform.

posted by NobleTrading at 3:11 AM

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