QQQ   290.66 (-1.89%)
AAPL   143.26 (-1.83%)
MSFT   243.47 (-1.89%)
META   147.16 (-3.02%)
GOOGL   97.10 (-2.28%)
AMZN   100.64 (-1.56%)
TSLA   167.51 (-5.84%)
NVDA   192.52 (-5.47%)
NIO   12.06 (-5.11%)
BABA   111.50 (-5.81%)
AMD   72.67 (-3.62%)
T   20.19 (+1.20%)
MU   62.04 (-2.87%)
F   12.90 (-2.79%)
CGC   2.85 (-2.73%)
GE   80.97 (-2.72%)
DIS   107.73 (-1.65%)
AMC   5.05 (-8.35%)
PFE   43.49 (-0.69%)
PYPL   79.92 (-2.33%)
NFLX   353.86 (-1.92%)
QQQ   290.66 (-1.89%)
AAPL   143.26 (-1.83%)
MSFT   243.47 (-1.89%)
META   147.16 (-3.02%)
GOOGL   97.10 (-2.28%)
AMZN   100.64 (-1.56%)
TSLA   167.51 (-5.84%)
NVDA   192.52 (-5.47%)
NIO   12.06 (-5.11%)
BABA   111.50 (-5.81%)
AMD   72.67 (-3.62%)
T   20.19 (+1.20%)
MU   62.04 (-2.87%)
F   12.90 (-2.79%)
CGC   2.85 (-2.73%)
GE   80.97 (-2.72%)
DIS   107.73 (-1.65%)
AMC   5.05 (-8.35%)
PFE   43.49 (-0.69%)
PYPL   79.92 (-2.33%)
NFLX   353.86 (-1.92%)
QQQ   290.66 (-1.89%)
AAPL   143.26 (-1.83%)
MSFT   243.47 (-1.89%)
META   147.16 (-3.02%)
GOOGL   97.10 (-2.28%)
AMZN   100.64 (-1.56%)
TSLA   167.51 (-5.84%)
NVDA   192.52 (-5.47%)
NIO   12.06 (-5.11%)
BABA   111.50 (-5.81%)
AMD   72.67 (-3.62%)
T   20.19 (+1.20%)
MU   62.04 (-2.87%)
F   12.90 (-2.79%)
CGC   2.85 (-2.73%)
GE   80.97 (-2.72%)
DIS   107.73 (-1.65%)
AMC   5.05 (-8.35%)
PFE   43.49 (-0.69%)
PYPL   79.92 (-2.33%)
NFLX   353.86 (-1.92%)
QQQ   290.66 (-1.89%)
AAPL   143.26 (-1.83%)
MSFT   243.47 (-1.89%)
META   147.16 (-3.02%)
GOOGL   97.10 (-2.28%)
AMZN   100.64 (-1.56%)
TSLA   167.51 (-5.84%)
NVDA   192.52 (-5.47%)
NIO   12.06 (-5.11%)
BABA   111.50 (-5.81%)
AMD   72.67 (-3.62%)
T   20.19 (+1.20%)
MU   62.04 (-2.87%)
F   12.90 (-2.79%)
CGC   2.85 (-2.73%)
GE   80.97 (-2.72%)
DIS   107.73 (-1.65%)
AMC   5.05 (-8.35%)
PFE   43.49 (-0.69%)
PYPL   79.92 (-2.33%)
NFLX   353.86 (-1.92%)

Gap Down Stocks

A gap is a break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Stocks that "gap down" are companies that open at prices that are significantly lower than their previous closing prices, often due to after-hours news items that negatively affect investor perceptions of the company's value. More about gap down stocks.

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CompanyGap Down %Opening PricePrevious CloseCurrent PricePrice Change Since OpenDaily VolumeIndicator(s)
CN Energy Group. Inc. stock logo
CN Energy Group.
-71.9%$0.61$2.17$0.59-3.3%15.97 millionShort Interest ↓
News Coverage
Positive News
Gap Down
High Trading Volume
Vera Therapeutics, Inc. stock logo
Vera Therapeutics
-15.1%$7.42$8.74$8.23+10.9%1.16 millionNews Coverage
Positive News
Gap Down
Quince Therapeutics, Inc. stock logo
Quince Therapeutics
-14.7%$0.92$1.08$1.00+8.6%3.37 millionPositive News
Gap Down
Auddia Inc. stock logo
-14.1%$1.16$1.35$1.42+22.4%84,209High Trading Volume
FOXO Technologies Inc. stock logo
FOXO Technologies
-11.9%$0.88$1.00$0.94+6.8%8.06 millionNews Coverage
Positive News
Gap Down
Eliem Therapeutics, Inc. stock logo
Eliem Therapeutics
-10.9%$3.43$3.85$3.74+9.0%3,820Short Interest ↑
Brooge Energy Limited stock logo
Brooge Energy
-9.5%$5.43$6.00$5.76+6.1%1,518Positive News
Gap Down
Brenmiller Energy Ltd stock logo
Brenmiller Energy
-9.1%$1.70$1.87$1.70flat13,315Positive News
Gap Down
High Trading Volume
Coda Octopus Group, Inc. stock logo
Coda Octopus Group
-8.5%$7.50$8.20$7.27-3.1%97,551News Coverage
Gap Down
High Trading Volume
Bilibili Inc. stock logo
-8.4%$25.45$27.78$25.40-0.2%9.67 millionGap Down
Bridger Aerospace Group
-8.4%$11.40$12.44$9.16-19.6%155,278Gap Down
Jianpu Technology Inc. stock logo
Jianpu Technology
-8.0%$1.83$1.99$1.90+3.8%35,407Gap Down
Purple Biotech Ltd. stock logo
Purple Biotech
-7.9%$1.51$1.64$1.58+4.6%30,031Positive News
Gap Down
Cosmos Health Inc. stock logo
Cosmos Health
-7.8%$6.03$6.54$5.95-1.3%2.43 millionShort Interest ↓
Gap Down
MEDIROM Healthcare Technologies Inc. stock logo
MEDIROM Healthcare Technologies
-7.7%$6.00$6.50$6.00flat1,178Gap Down
GDS Holdings Limited stock logo
-7.6%$24.37$26.38$23.60-3.2%1.52 million
D-Market Elektronik Hizmetler ve Ticaret A.S. stock logo
D-Market Elektronik Hizmetler ve Ticaret A.S.
-7.5%$1.11$1.20$1.19+7.2%371,019Short Interest ↓
News Coverage
NaaS Technology Inc. stock logo
NaaS Technology
-7.3%$5.07$5.47$5.41+6.7%213,187Gap Down
Dada Nexus Limited stock logo
Dada Nexus
-7.3%$14.07$15.18$12.79-9.1%2.95 millionShort Interest ↑
Gap Down
Latch, Inc. stock logo
-7.3%$0.89$0.96$0.94+5.1%723,638Short Interest ↓
Gap Down
CollPlant Biotechnologies Ltd. stock logo
CollPlant Biotechnologies
-7.2%$12.05$12.99$10.80-10.4%60,071Short Interest ↓
Positive News
Gap Down
High Trading Volume
Rubius Therapeutics, Inc. stock logo
Rubius Therapeutics
-7.1%$0.26$0.28$0.26+1.5%318,197Short Interest ↑
Gap Down
Remark Holdings, Inc. stock logo
-6.8%$1.36$1.46$1.31-3.7%1.39 millionShort Interest ↑
Gap Down
Wilhelmina International, Inc. stock logo
Wilhelmina International
-6.8%$4.27$4.58$4.39+2.8%3,387Short Interest ↑
Gap Down
Jewett-Cameron Trading Company Ltd. stock logo
Jewett-Cameron Trading
-6.7%$4.99$5.35$5.35+7.2%6,249Positive News
Gap Down
Tencent Music Entertainment Group stock logo
Tencent Music Entertainment Group
-6.7%$8.09$8.67$8.32+2.8%7.38 millionAnalyst Report
Positive News
Gap Down
Celularity Inc. stock logo
-6.7%$0.98$1.05$0.91-6.8%1.12 millionAnalyst Report
Short Interest ↑
Gap Down
Ayro, Inc. stock logo
-6.7%$0.70$0.75$0.71+0.8%173,267Gap Down
Silence Therapeutics plc stock logo
Silence Therapeutics
-6.7%$12.60$13.50$12.73+1.0%15,650News Coverage
Gap Down
ReTo Eco-Solutions, Inc. stock logo
ReTo Eco-Solutions
-6.6%$0.42$0.45$0.44+4.4%26,179Positive News
Nayax Ltd. stock logo
-6.5%$20.35$21.77$21.02+3.3%1,408Analyst Revision
Gap Down
AGM Group Holdings Inc. stock logo
AGM Group
-6.5%$1.58$1.69$1.63+3.2%12,790Gap Down
HomeStreet, Inc. stock logo
-6.5%$27.40$29.30$26.78-2.3%844,679News Coverage
Gap Down
High Trading Volume
17 Education & Technology Group Inc. stock logo
17 Education & Technology Group
-6.4%$1.75$1.87$1.78+1.4%92,365Gap Down
InterCure Ltd. stock logo
-6.4%$3.51$3.75$3.60+2.6%49,446Positive News
Gap Down
So-Young International Inc. stock logo
So-Young International
-6.4%$2.64$2.82$2.82+6.8%713,800Short Interest ↑
Gap Down
Clovis Oncology
-6.4%$0.10$0.11$0.11+9.7%333,851News Coverage
Gap Down
Minerva Surgical, Inc. stock logo
Minerva Surgical
-6.3%$0.34$0.36$0.37+10.3%2.73 millionPositive News
Gap Down
Applied UV, Inc. stock logo
Applied UV
-6.3%$1.49$1.59$1.29-13.8%4.69 millionGap Down
MicroAlgo Inc. stock logo
-6.2%$2.72$2.90$2.76+1.5%1.88 millionNews Coverage
Gap Down
Lufax Holding Ltd stock logo
-6.2%$3.04$3.24$2.94-3.3%21.93 millionShort Interest ↑
News Coverage
Gap Down
Moolec Science SA stock logo
Moolec Science
-6.2%$5.03$5.36$5.05+0.4%27,629Positive News
Gap Down
FLJ Group
-6.1%$1.54$1.64$1.55+0.6%375,491Positive News
Gap Down
Zhihu Inc. stock logo
-6.1%$1.70$1.81$1.64-3.8%3.15 millionGap Down
Rockwell Medical, Inc. stock logo
Rockwell Medical
-6.0%$1.56$1.66$1.43-8.7%277,181News Coverage
Gap Down
Emerson Radio Corp. stock logo
Emerson Radio
-6.0%$0.53$0.57$0.55+2.6%8,525Gap Down
Pop Culture Group Co., Ltd stock logo
Pop Culture Group
-6.0%$0.94$1.00$1.03+9.6%5,482Positive News
Gap Down
Full Truck Alliance Co. Ltd. stock logo
Full Truck Alliance
-6.0%$8.18$8.70$8.24+0.7%7.17 million
Kornit Digital Ltd. stock logo
Kornit Digital
-6.0%$23.17$24.64$22.82-1.5%345,448Short Interest ↓
Positive News
Gap Down
Grove Collaborative Holdings, Inc. stock logo
Grove Collaborative
-5.9%$0.45$0.48$0.44-3.3%498,975Short Interest ↓
Positive News
Recon Technology, Ltd. stock logo
Recon Technology
Alimera Sciences, Inc. stock logo
Alimera Sciences
-5.8%$2.45$2.60$2.80+14.3%24,442Short Interest ↓
News Coverage
High Trading Volume
UP Fintech Holding Limited stock logo
UP Fintech
-5.7%$3.96$4.20$3.99+0.8%730,306Short Interest ↓
Positive News
Gap Down
Oriental Culture Holding LTD stock logo
Oriental Culture
-5.7%$0.66$0.70$0.69+4.9%9,229News Coverage
Gap Down
Usio, Inc. stock logo
-5.7%$1.82$1.93$1.83+0.5%6,303Positive News
Gap Down
Elys Game Technology, Corp. stock logo
Elys Game Technology
-5.7%$0.54$0.58$0.64+17.1%551,468Short Interest ↓
Gap Down
Ryvyl Inc. stock logo
-5.7%$0.57$0.60$0.53-6.3%548,900Gap Down
WaveDancer, Inc. stock logo
Baozun Inc. stock logo
-5.7%$7.67$8.13$7.38-3.8%903,745Analyst Report
Gap Down
Alibaba Group Holding Limited stock logo
Alibaba Group
-5.7%$111.69$118.38$111.50-0.2%20.17 millionGap Down
Gaotu Techedu Inc. stock logo
Gaotu Techedu
-5.7%$3.84$4.07$3.72-3.1%3.61 millionShort Interest ↑
Gap Down
Advanced Health Intelligence Ltd. stock logo
Advanced Health Intelligence
-5.6%$0.51$0.54$0.50-2.0%36,342News Coverage
Tiziana Life Sciences Ltd stock logo
Tiziana Life Sciences
-5.6%$0.61$0.65$0.62+1.9%66,782Short Interest ↑
Gap Down
Huize Holding Limited stock logo
-5.6%$1.19$1.26$1.28+7.2%33,173Short Interest ↓
Gap Down
Tuya Inc. stock logo
-5.5%$2.73$2.89$2.70-1.1%519,583Gap Down
iQIYI, Inc. stock logo
-5.4%$5.90$6.24$6.95+17.8%40.15 millionOptions Volume
Gap Down
SIGNA Sports United stock logo
SIGNA Sports United
-5.4%$4.73$5.00$4.85+2.5%30,139Upcoming Earnings
Short Interest ↑
Gap Down
Cheetah Mobile Inc. stock logo
Cheetah Mobile
-5.3%$2.67$2.82$2.73+2.2%43,749Gap Down
Singularity Future Technology Ltd. stock logo
Singularity Future Technology
-5.3%$0.63$0.66$0.66+4.8%36,956News Coverage
OneConnect Financial Technology Co., Ltd. stock logo
OneConnect Financial Technology
-5.3%$8.08$8.53$7.79-3.6%58,648Gap Down
Cazoo Group Ltd stock logo
Cazoo Group
-5.2%$0.20$0.21$0.20+0.7%1.62 millionGap Down
Tuniu Co. stock logo
-5.2%$2.39$2.52$2.38-0.4%1.73 millionShort Interest ↓
Gap Down
ProMIS Neurosciences, Inc. stock logo
ProMIS Neurosciences
-5.2%$5.15$5.43$5.54+7.6%2,552Positive News
Gap Down
360 DigiTech, Inc. stock logo
360 DigiTech
-5.2%$23.36$24.63$24.26+3.9%1.34 millionNews Coverage
Positive News
Gap Down
California BanCorp stock logo
California BanCorp
-5.1%$24.38$25.70$25.31+3.8%16,542Gap Down
HUTCHMED (China) Limited stock logo
-5.1%$18.85$19.87$17.72-6.0%359,734Gap Down
Aurora Mobile Limited stock logo
Aurora Mobile
-5.1%$0.73$0.77$0.74+1.8%41,189Positive News
Gap Down
EHang Holdings Limited stock logo
-5.1%$13.55$14.28$12.82-5.4%1.91 millionShort Interest ↓
News Coverage
Gap Down
I-Mab stock logo
-5.0%$6.46$6.80$5.77-10.7%498,333Short Interest ↑
Gap Down
JD.com, Inc. stock logo
-4.9%$60.61$63.74$60.01-1.0%6.60 millionNews Coverage
Gap Down
Bionomics Limited stock logo
-4.9%$4.07$4.28$4.01-1.5%5,166Gap Down
Pinduoduo Inc. stock logo
-4.8%$99.61$104.68$97.32-2.3%9.24 millionShort Interest ↑
Gap Down
Guild Holdings stock logo
-4.8%$10.48$11.01$10.90+4.0%1,099Short Interest ↓
Gap Down
QualTek Services Inc. stock logo
QualTek Services
-4.8%$0.51$0.54$0.49-3.9%51,797Positive News
Gap Down
ZTO Express (Cayman) Inc. stock logo
ZTO Express (Cayman)
-4.7%$27.73$29.11$28.56+3.0%1.26 millionShort Interest ↓
HUYA Inc. stock logo
-4.7%$5.50$5.77$5.70+3.6%2.55 millionGap Down
VEON Ltd. stock logo
-4.6%$0.50$0.52$0.50+0.4%1.08 millionGap Down
Adagene Inc. stock logo
-4.6%$1.86$1.95$1.86flat28,936Gap Down
Trip.com Group Limited stock logo
Trip.com Group
-4.6%$37.61$39.41$37.51-0.3%4.87 millionAnalyst Report
Gap Down
Futu Holdings Limited stock logo
-4.5%$51.74$54.19$51.27-0.9%1.78 millionShort Interest ↑
Gap Down
New Oriental Education & Technology Group Inc. stock logo
New Oriental Education & Technology Group
-4.5%$41.95$43.93$42.30+0.8%2.05 millionShort Interest ↑
Gap Down
WalkMe Ltd. stock logo
H World Group Limited stock logo
H World Group
-4.5%$47.99$50.23$48.74+1.6%2.08 millionPositive News
Gap Down
Tattooed Chef, Inc. stock logo
Tattooed Chef
-4.4%$1.51$1.58$1.57+4.3%2.62 millionPositive News
Gap Down
High Trading Volume
Youdao, Inc. stock logo
-4.4%$7.56$7.91$7.06-6.6%152,316Short Interest ↑
Gap Down
IMARA Inc. stock logo
-4.4%$3.91$4.09$4.54+16.1%203,037Gap Down
BuzzFeed, Inc. stock logo
-4.4%$3.70$3.87$2.79-24.6%44.31 millionGap Down
Zai Lab Limited stock logo
Zai Lab
Evogene Ltd. stock logo
-4.4%$0.75$0.78$0.77+3.2%57,667Gap Down
Genfit S.A. stock logo
-4.4%$4.17$4.36$4.36+4.6%7,562Gap Down
How Investors Can Identify and Successfully Trade Gap-Down Stocks

Trading gap-down stocks can be a profitable strategy for active, risk-tolerant investors

Gap-down stocks are stocks that open at a lower level than the previous day’s closing price. A signature feature of a gap-down stock is a sharp downward price move with no other trading occurring before or after. This movement creates a price gap. Investors can identify gap-down stocks during after-hours and pre-market trading. Reasons why a stock may gap down include the release of news about the stock, such as an earnings report that missed analysts’ expectations or some sort of geo-political event that may incite speculators to bid down the price of the stock.

A gap-down stock indicates a trend that may either be short-lived (i.e. the gap fills quickly) or could be the beginning of a negative reversal for the stock. Trading the gap requires discipline and an understanding of how to analyze the gap. An effective trading strategy will also require the use of trailing stops that will help the trader exit the trade before key levels of support or resistance are breached (which usually indicates the trend is breaking).

In this article we’ll dissect gap-down stocks by defining what they are and how traders identify them. After that, we’ll review the different kinds of gaps and how to identify them. We’ll also review some of the more common trading strategies for gap-down stocks.

Anytime an investor identifies a stock that is gapping down, it indicates a large volume of sellers. However, what’s harder to tell is whether the gapping action is short lived or whether it will continue to become a trend.

Investors who want to trade gap-down stocks can easily find them by using a stock screener. Once investors identify a potential gap-up stock to trade, they should carefully study the longer term charts of the stock to check for clearly defined areas of support and resistance.

 It is important to look at stocks that are trading with a high volume (a good average volume is above 500,000 shares a day). A gap-down stock is clearly represented in a candlestick pattern. A candlestick is a technical indicator that shows the opening and closing price of a stock for a specific period. The color and composition of the candlestick provide information about a stock’s direction and momentum.

One word of caution should come into play here. Although any stock can gap down, significant price movement can be common with penny stocks or other obscure stocks. In this case, the stock may show a significantly large gap. However, the trading volume for these stocks is typically fairly low. This not only explains the gap, but also is a good indication that it may be difficult to trade. 

The gap in a gap-down stock is either a “full gap” or “partial gap”.

  • A full gap occurs when a stock opens at a lower level than the previous session’s low.
  • A partial gap occurs when a stock opens below the previous day’s closing price.

Here’s an example that illustrates the difference between a full gap and a partial gap. During the trading day the stock of Company XYZ closes at $35. However, during the day the stock was trading as low as $32 per share. When the market opens on the following trading day, the stock was at $31. This indicates a full gap because the price was below the previous daily low. However, if the stock opens between $32 and $35 it would be a partial gap because the stock price would be below the previous close but above the previous day’s low.

For many investors, full gaps offer a better trading opportunity because they provide a bigger window for profit (sometimes the gap can be in place for several days). This is, in part, due to what a full gap suggests about supply and demand. If a gap-down stock opens below the previous daily low it means the stock is under tremendous selling pressure. This increase selling demand signals the market maker that the stock requires a significant price change to fill market orders. With a partial gap, the demand does not typically require a large change in price.

  • Breakaway Gap – This is a gap that takes place at the end of a pricing pattern and signals the start of a new trend. A breakaway gap coincides with high volume.
  • Exhaustion Gap – This is a gap that takes place near the end of a pricing pattern and represents a final attempt to set a new high or low. An exhaustion gaps coincides with low volume.
  • Common Gap – A common gap is one that cannot be placed in a price pattern. It simply represents an area where the price has gapped.
  • Continuation Gap – This is a gap that occurs in the middle of a price pattern and signals a rush of buyers or sellers who share a common belief in the underlying stock’s future direction.

It is common for gaps to get filled in naturally. This means the stock price will move back to its original level. Because of the volatility around earnings season, this is typically a time when stocks will make large price movements.

One reason for this is that it’s not uncommon for analysts to be overly pessimistic and push a stock down too much. In this case, there will almost always be a correction as the market absorbs the news and investors push the stock higher. If the movement is done without firm support and resistance levels, the stock may revert back because there is nothing to keep it anchored at that level.

Also, exhaustion gaps are more likely to be filled since they happen at the end of a pricing pattern. In the case of a gap-down stock, the end of a pricing pattern is a signal for buyers to start entering the stock, making it more likely to start an uptrend.

Once you are familiar with the mechanics of gaps and understanding how to look for potential gap trading opportunities, it’s time to look at some common gap trading strategies. These involve having clear rules for entering and exiting a trade. Gap trading can be risky and having the discipline to follow entry and exit points is one way for you to help minimize that risk.

Most gap trading occurs one hour after the market opens to allow time for the stock price to settle into a range. No matter what strategy is being used, it is important to set trailing stops that provide a point where you exit the trade in case the trade starts moving in the opposite direction. For example, if you buy a stock at $50, you could set a trailing stop of 5 percent, in this case $47.50. If the stock rises to $60, you raise the stop to $55.50 (5% of $60) and keep on raising it while the price rises. The opposite would occur if you’re trying to short the same stock at $50. In this case, you would set a trailing stop at $53.50. If the price drops to $40, you would reset the stop at $42. Trailing stops will usually be tighter (smaller) for partial gap stocks as opposed to full gap stocks.

Here are the most common trading strategies for gap-down stocks. These will occur one hour after the market open (typically 10:30 A.M. EST). These strategies also work for after-hours or pre-market trading.

  • Full Gap Long Position (Buy): Set a long trailing stop at two ticks (defined by the bid/ask spread) above whatever the previous day’s low stock price. The bid/ask spread is usually either one-eight or one-quarter point.
  • Full Gap Short Position (Sell): Set a short trailing stop at two ticks below the lowest stock price reached in the first hour of trading.
  • Partial Gap Long Position (Buy): Set a long stop two ticks above the high achieved in the first hour of trading.
  • Partial Gap Short Position (Sell): Set a short stop two ticks below the low achieved in the first hour of trading.

A dead cat bounce is a short trading strategy unique to gap-down stocks. A dead cat bounce is a significant psychological market event that is triggered by a significant market event that causes a wave of selling. Even though the stock may move up a little bit, it is really just an opportunity for sellers to get out.

The general idea behind a dead cat bounce is a stock that gaps down in overnight trading, continues to go down at the opening bell but then rallies to a point near the opening price before continuing its downward trend.

For a dead cat bounce to exist a few conditions need to be met.

  1. The stock must show a significant gap from the prior day’s closing price. If the stock is not considered to be volatile, many traders use 5% as a guideline. For volatile stocks, they usually look for a much larger gap.
  2. The stock must decline for at least five minutes once trading begins. If the price doesn’t keep falling, there can’t be a bounce.
  3. The stock will then start to rally in an area close to its opening price. This will typically represent a resistance level. This is where traders should be looking to take a short position.
  4. The stock will then fall again. This is the confirmation that the stock is indeed having a dead cat bounce.

On any given day on any of the major stock exchanges, it’s not uncommon for stocks to display volatile price moves within the course of a trading day. However high-frequency traders, particularly day traders understand – and attempt to profit from – the activity that happens after the market closes.

Gap-down stocks are stocks that show significant downward price movement in after hours or pre-market trading. Although stocks can gap down at any time, they are common during earnings season when a report that falls short of analysts’ expectations can trigger a wave of selling. Stock screening tools make it easy for investors to find gap-down stocks, but identifying which ones make good trading opportunities requires a bit more sophistication.

Gap prices can either reflect a full gap or a partial gap. And fit in one of four categories: A breakaway gap, an exhaustion gap, a common gap or a continuation gap. Knowing what type of gap is the key to successful trading.

Gap trading strategies require a disciplined system that includes the use of trailing stops at well-defined entry and exit points to limit loss and protect profits. Not every gap stop is ideal for trading. Investors need to pay attention to other technical indicators such as trading volume to decide whether or not a gap-down stock may produce a profitable trade.

Effective gap trading strategies are executed in the first hour after the opening bell. This is because the first hour will typically allow investors to see if the trend is sustainable and also to track areas of support and resistance that are critical when setting trailing stops. Trading gap-down stocks in many cases requires taking a short position, which can leave an investor more exposed to risk.

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