What is a Gap Open?
A "gap open" is when the opening price of a stock is above (gap
up) or below (gap down) the previous evening's closing price.
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A Gap Up at the Open Trading Strategy
Like any system, method, tactic or strategy, its not 100% reliable,
but applying risk control and the following criteria can significantly increase
a trader's profitability.
The stock must gap open to the upside on a split announcement, positive earnings, a brokerage upgrade, or strong buying in the stock's sector.
Ideally, the stock should gap above the previous day's high.
The stock should be a relatively strong issue that is in an up trend and/or rebounding off significant price support, a major moving average (like the 50-DMA or the 200-DMA), or a well-defined trend line.
Preferably, the company should be in a very strong group
Note that not all gap opens are to the upside and a gap down at the open can be played in a similar manner with the intention of selling the stock short. The same rules would apply "in reverse," just look for a relatively weak issue, with a downtrend and a reason for the gap down.
Once the stock has gapped open to the upside in the morning and has traded for a complete half-hour, the entry point at which to buy will be ...
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