In investing, a gap is a rapid change in stock price that sees no trading in between prices. At times, this price movement can help traders identify the course that stock will take. Following is some investing information on analyzing gap in stock trading to know when to buy stock.
Gap in Stock Trading
A gap is a break in a security's price that sees no trading. For example, if a stock closes one day at $10, and opens the next at $12, it would have gapped up. If it dropped rapidly from $10 to $8, it would have gapped down.
Filling the Gap in Investing
Filling the gap means that the price will overlap the before the gap price. So, when a stock gaps up from $10 to $12, the gap will fill when the price drops again to $10 or lower, which can take a while. The amount of time that it takes to fill the gap can greatly affect any trader's investing success, as certain types of gaps are followed by different price movements, some of which carry the price up or down significantly before the gap is filled.
Analyzing Gap in Stock Trading: When to Buy Stock
Knowing when to buy into stock after it gaps can be tricky, but when traders do so at the right times, their investments can turn out to be quite profitable. The best time to buy stock in general is when it will subsequently rise, so buying after a stock seems to be either bottoming out (evidenced by an exhaustion gap), starting a strong uptrend (with the breakaway gap), or showing strong momentum during the heart of an uptrend (with a runaway gap on the upside) can make for wise investing.
Of course, there is never any sure fire way to see which type of gap occurs. Referring to news reports, available for free at trade sites like E-Trade, Scottrade, TradeKing, and TD Ameritrade can help investors see factors that can influence price, and they can trade according to their predictions. Generally, however, if a stock is very low and then gaps down and starts to turn, the downtrend can be reversing, or if it gaps up and then starts moving up in price after staying low it could be starting an uptrend, and if it has strong steady upward movement but has not risen exceptionally high, a gap up could indicate continuing price increases.
Although there is no exact predictor of a security's price movements, a gap in price can suggest a stock's course. When traders use this to buy stock at the right times, shares may be sold later for favorable returns.
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Investopedia explains gap in stock trading
Thomas Wyatt - Tom Wyatt grew up in Virginia. He has been interested in the outdoors (fishing, birding, camping, and other such activities) since he was ...
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