S&P 500   4,274.21 (+0.02%)
DOW   33,556.50 (-0.19%)
QQQ   353.22 (-0.28%)
AAPL   169.95 (-1.17%)
MSFT   311.11 (-0.33%)
META   292.75 (-2.08%)
GOOGL   129.47 (+0.70%)
AMZN   125.33 (-0.52%)
TSLA   238.05 (-2.49%)
NVDA   422.00 (+0.69%)
NIO   8.43 (+0.24%)
BABA   85.80 (-0.13%)
AMD   97.42 (+1.52%)
T   14.86 (-1.07%)
F   12.32 (-0.88%)
MU   67.45 (-0.72%)
CGC   0.90 (-2.07%)
GE   110.28 (+0.32%)
DIS   79.58 (-0.59%)
AMC   7.57 (-4.30%)
PFE   32.10 (-0.93%)
PYPL   57.07 (-3.16%)
NFLX   377.94 (-0.35%)
S&P 500   4,274.21 (+0.02%)
DOW   33,556.50 (-0.19%)
QQQ   353.22 (-0.28%)
AAPL   169.95 (-1.17%)
MSFT   311.11 (-0.33%)
META   292.75 (-2.08%)
GOOGL   129.47 (+0.70%)
AMZN   125.33 (-0.52%)
TSLA   238.05 (-2.49%)
NVDA   422.00 (+0.69%)
NIO   8.43 (+0.24%)
BABA   85.80 (-0.13%)
AMD   97.42 (+1.52%)
T   14.86 (-1.07%)
F   12.32 (-0.88%)
MU   67.45 (-0.72%)
CGC   0.90 (-2.07%)
GE   110.28 (+0.32%)
DIS   79.58 (-0.59%)
AMC   7.57 (-4.30%)
PFE   32.10 (-0.93%)
PYPL   57.07 (-3.16%)
NFLX   377.94 (-0.35%)
S&P 500   4,274.21 (+0.02%)
DOW   33,556.50 (-0.19%)
QQQ   353.22 (-0.28%)
AAPL   169.95 (-1.17%)
MSFT   311.11 (-0.33%)
META   292.75 (-2.08%)
GOOGL   129.47 (+0.70%)
AMZN   125.33 (-0.52%)
TSLA   238.05 (-2.49%)
NVDA   422.00 (+0.69%)
NIO   8.43 (+0.24%)
BABA   85.80 (-0.13%)
AMD   97.42 (+1.52%)
T   14.86 (-1.07%)
F   12.32 (-0.88%)
MU   67.45 (-0.72%)
CGC   0.90 (-2.07%)
GE   110.28 (+0.32%)
DIS   79.58 (-0.59%)
AMC   7.57 (-4.30%)
PFE   32.10 (-0.93%)
PYPL   57.07 (-3.16%)
NFLX   377.94 (-0.35%)
S&P 500   4,274.21 (+0.02%)
DOW   33,556.50 (-0.19%)
QQQ   353.22 (-0.28%)
AAPL   169.95 (-1.17%)
MSFT   311.11 (-0.33%)
META   292.75 (-2.08%)
GOOGL   129.47 (+0.70%)
AMZN   125.33 (-0.52%)
TSLA   238.05 (-2.49%)
NVDA   422.00 (+0.69%)
NIO   8.43 (+0.24%)
BABA   85.80 (-0.13%)
AMD   97.42 (+1.52%)
T   14.86 (-1.07%)
F   12.32 (-0.88%)
MU   67.45 (-0.72%)
CGC   0.90 (-2.07%)
GE   110.28 (+0.32%)
DIS   79.58 (-0.59%)
AMC   7.57 (-4.30%)
PFE   32.10 (-0.93%)
PYPL   57.07 (-3.16%)
NFLX   377.94 (-0.35%)

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)
Faraday Future Intelligent Electric Inc. stock logo
FFIE
Faraday Future Intelligent Electric
-26.0%$1.82$2.46$1.38-24.2%16.35 millionOptions Volume
Positive News
Gap Down
High Trading Volume
Minerva Surgical, Inc. stock logo
UTRS
Minerva Surgical
-25.7%$0.21$0.28$0.19-8.7%1.38 millionPositive News
Gap Down
Femasys Inc. stock logo
FEMY
Femasys
-23.0%$1.14$1.48$1.16+1.8%14.30 millionAnalyst Report
Short Interest ↑
News Coverage
Gap Down
High Trading Volume
Soleno Therapeutics, Inc. stock logo
SLNO
Soleno Therapeutics
-12.6%$23.43$26.80$20.42-12.8%4.82 millionAnalyst Report
Short Interest ↑
News Coverage
Gap Down
High Trading Volume
Greenbrook TMS Inc. stock logo
GBNH
Greenbrook TMS
-11.1%$0.24$0.27$0.27+11.2%4,902Short Interest ↓
Positive News
Gap Down
Axcella Health Inc. stock logo
AXLA
Axcella Health
-11.0%$7.07$7.94$6.79-4.0%137,173Short Interest ↓
Gap Down
Rubicon Technologies, Inc. stock logo
RBT
Rubicon Technologies
-10.9%$2.16$2.42$2.31+6.7%241,017Stock Split
Short Interest ↓
News Coverage
Gap Down
CDT
Murphy Canyon Acquisition
-10.2%$5.89$6.56$5.61-4.8%133,386Gap Down
High Trading Volume
RDZN
Roadzen
-9.8%$4.51$5.00$4.04-10.4%63,300Gap Down
Applied Therapeutics, Inc. stock logo
APLT
Applied Therapeutics
-9.3%$2.23$2.46$2.54+13.9%704,542Short Interest ↑
Gap Down
NextEra Energy Partners, LP stock logo
NEP
NextEra Energy Partners
-8.8%$42.79$46.90$39.18-8.4%5.77 millionOptions Volume
News Coverage
Gap Down
High Trading Volume
PHAXIAM Therapeutics S.A. stock logo
PHXM
PHAXIAM Therapeutics
-8.7%$4.20$4.60$4.20flat455Stock Split
Gap Down
Bullfrog AI Holdings, Inc. stock logo
BFRG
Bullfrog AI
-8.5%$3.25$3.55$3.30+1.5%819,120Short Interest ↑
News Coverage
Positive News
Gap Down
Planet Green Holdings Corp. stock logo
PLAG
Planet Green
-8.2%$0.67$0.73$0.71+6.0%21,426Gap Down
VirnetX Holding Co. stock logo
VHC
VirnetX
-7.8%$0.26$0.28$0.27+4.6%68,625Upcoming Earnings
Gap Down
Brera Holdings PLC stock logo
BREA
Brera
-7.5%$1.11$1.20$0.97-12.6%12,530Short Interest ↓
News Coverage
Gap Down
uCloudlink Group Inc. stock logo
UCL
uCloudlink Group
-7.5%$2.11$2.28$2.10-0.5%1,574Positive News
Gap Down
TFF Pharmaceuticals, Inc. stock logo
TFFP
TFF Pharmaceuticals
-7.2%$0.31$0.34$0.33+5.8%17,327Short Interest ↓
Positive News
Gap Down
5E Advanced Materials, Inc. stock logo
FEAM
5E Advanced Materials
-7.1%$2.37$2.55$2.54+7.2%85,984Gap Down
Moxian (BVI) Inc stock logo
MOXC
Moxian (BVI)
-7.0%$0.88$0.95$0.92+3.9%58,139Gap Down
Akari Therapeutics, Plc stock logo
AKTX
Akari Therapeutics
-6.9%$3.77$4.05$3.75-0.5%14,366Short Interest ↑
News Coverage
Gap Down
Akso Health Group stock logo
AHG
Akso Health Group
-6.9%$0.95$1.02$1.03+8.5%31,846Short Interest ↓
Positive News
Gap Down
TrueCar, Inc. stock logo
TRUE
TrueCar
-6.7%$2.09$2.24$2.29+9.6%150,491Analyst Downgrade
Gap Down
WTMA
Welsbach Technology Metals Acquisition
-6.6%$10.69$11.44$10.85+1.5%92,748Positive News
Gap Down
High Trading Volume
SIGNA Sports United stock logo
SSU
SIGNA Sports United
-6.5%$0.30$0.32$0.28-8.3%279,702Gap Down
High Trading Volume
Satellogic Inc. stock logo
SATL
Satellogic
-6.4%$1.17$1.25$1.15-1.7%63,486Short Interest ↑
Positive News
Gap Up
Allot Communications Ltd stock logo
ALLT
Allot Communications
-6.1%$1.99$2.12$2.07+4.0%87,092News Coverage
Gap Down
Sadot Group Inc. stock logo
SDOT
Sadot Group
-6.1%$0.78$0.83$0.76-2.9%403,525News Coverage
Positive News
Gap Down
Brooge Energy Limited stock logo
BROG
Brooge Energy
-6.0%$5.04$5.36$5.20+3.2%677News Coverage
Gap Down
MicroAlgo Inc. stock logo
MLGO
MicroAlgo
-6.0%$2.21$2.35$2.11-4.5%427,309Short Interest ↓
Gap Down
Morphic Holding, Inc. stock logo
MORF
Morphic
-6.0%$20.06$21.33$22.50+12.2%4.22 millionAnalyst Report
News Coverage
Gap Down
High Trading Volume
Novo Integrated Sciences, Inc. stock logo
NVOS
Novo Integrated Sciences
-5.7%$0.21$0.22$0.24+17.6%14.06 millionPositive News
Gap Down
ESSA Pharma Inc. stock logo
EPIX
ESSA Pharma
-5.4%$3.13$3.31$2.87-8.3%25,789Positive News
Gap Down
Future FinTech Group Inc. stock logo
FTFT
Future FinTech Group
-5.4%$1.05$1.11$1.09+4.2%30,815News Coverage
Gap Down
Patriot National Bancorp, Inc. stock logo
PNBK
Patriot National Bancorp
-5.3%$7.26$7.67$7.41+2.1%4,366Gap Down
TradeUP Acquisition Corp. stock logo
UPTD
TradeUP Acquisition
-5.3%$11.52$12.16$10.80-6.2%49,167Short Interest ↓
Gap Down
FTEL
Fitell
-5.1%$2.40$2.53$2.48+3.3%1,931Positive News
Gap Down
Elys Game Technology, Corp. stock logo
ELYS
Elys Game Technology
-5.1%$0.47$0.50$0.50+6.4%62,085Short Interest ↑
Gap Down
ZIVO Bioscience, Inc. stock logo
ZIVO
ZIVO Bioscience
-5.1%$1.12$1.18$1.13+0.9%25,110Upcoming Earnings
News Coverage
Positive News
Gap Down
High Trading Volume
AgeX Therapeutics, Inc. stock logo
AGE
AgeX Therapeutics
-5.1%$0.74$0.78$0.74+0.2%6,054Gap Down
U Power Limited stock logo
UCAR
U Power
-5.1%$3.75$3.95$3.92+4.5%21,921Positive News
Gap Down
Maui Land & Pineapple Company, Inc. stock logo
MLP
Maui Land & Pineapple
-5.0%$12.17$12.81$13.20+8.5%33,963News Coverage
Gap Down
MDBH
MDB Capital Holdings, LLC Class A common
-4.9%$11.18$11.76$11.24+0.5%12,889Gap Down
HCW Biologics Inc. stock logo
HCWB
HCW Biologics
-4.8%$1.97$2.07$1.96-0.5%7,495Short Interest ↑
Positive News
Gap Down
FG Financial Group, Inc. stock logo
FGF
FG Financial Group
-4.7%$1.22$1.28$1.30+6.6%1,367Short Interest ↑
Positive News
Gap Down
Traeger, Inc. stock logo
COOK
Traeger
-4.6%$2.70$2.83$2.53-6.3%1.51 millionAnalyst Downgrade
Short Interest ↓
Gap Down
High Trading Volume
Marchex, Inc. stock logo
MCHX
Marchex
-4.5%$1.36$1.42$1.35-0.7%6,654Gap Down
Biofrontera Inc. stock logo
BFRI
Biofrontera
-4.5%$8.71$9.12$9.05+3.9%7,183Short Interest ↑
Positive News
Gap Down
Mercurity Fintech Holding Inc. stock logo
MFH
Mercurity Fintech
-4.5%$1.49$1.56$1.60+7.4%23,736Short Interest ↓
Positive News
Gap Down
REE Automotive Ltd. stock logo
REE
REE Automotive
-4.5%$0.15$0.15$0.15+3.8%282,848Short Interest ↑
Positive News
Gap Down
Applied DNA Sciences, Inc. stock logo
APDN
Applied DNA Sciences
-4.3%$1.21$1.27$1.28+5.4%26,111Analyst Report
News Coverage
Gap Down
USD Partners LP stock logo
USDP
USD Partners
-4.3%$0.56$0.58$0.57+0.9%24,449Analyst Report
News Coverage
Gap Down
Pasithea Therapeutics Corp. stock logo
KTTA
Pasithea Therapeutics
-4.3%$0.45$0.47$0.48+6.6%12,794Short Interest ↓
Gap Down
Vaccitech plc stock logo
VACC
Vaccitech
-4.3%$2.70$2.82$2.82+4.4%1.10 millionAnalyst Report
News Coverage
Gap Down
High Trading Volume
Near Intelligence, Inc. stock logo
NIR
Near Intelligence
-4.1%$0.26$0.27$0.44+69.8%72.06 millionShort Interest ↑
Gap Down
High Trading Volume
ETAO International Co., Ltd. stock logo
ETAO
ETAO International
-4.0%$0.37$0.39$0.37+0.1%11,151Short Interest ↓
Gap Down
AngloGold Ashanti Limited stock logo
AU
AngloGold Ashanti
-4.0%$17.46$18.18$16.60-4.9%2.74 millionAnalyst Report
News Coverage
Gap Down
Direct Digital Holdings, Inc. stock logo
DRCT
Direct Digital
-4.0%$2.43$2.53$2.44+0.4%9,257Analyst Report
Short Interest ↓
News Coverage
Gap Down
Semantix, Inc. stock logo
STIX
Semantix
-3.9%$1.71$1.78$1.73+1.2%38,501Short Interest ↑
Positive News
Gap Down
Dawson Geophysical stock logo
DWSN
Dawson Geophysical
-3.8%$2.26$2.35$2.23-1.3%57,510Positive News
Gap Down
High Trading Volume
TPG RE Finance Trust, Inc. stock logo
TRTX
TPG RE Finance Trust
-3.8%$6.66$6.92$6.49-2.6%426,882Positive News
Gap Down
MEI Pharma, Inc. stock logo
MEIP
MEI Pharma
-3.7%$7.07$7.34$7.22+2.1%50,974Analyst Report
Insider Buying
News Coverage
Gap Down
Byrna Technologies Inc. stock logo
BYRN
Byrna Technologies
-3.6%$2.65$2.75$2.37-10.6%82,933Upcoming Earnings
Analyst Downgrade
News Coverage
Positive News
Gap Down
Nutriband Inc. stock logo
NTRB
Nutriband
-3.6%$2.40$2.49$2.62+9.2%3,141Short Interest ↓
Gap Down
Zhihu Inc. stock logo
ZH
Zhihu
-3.6%$1.07$1.11$1.12+4.2%2.71 millionShort Interest ↑
Gap Down
SIFCO Industries, Inc. stock logo
SIF
SIFCO Industries
-3.5%$2.99$3.10$3.00+0.3%3,526Gap Down
Phoenix Motor Inc. stock logo
PEV
Phoenix Motor
-3.5%$0.55$0.58$0.68+22.7%1.40 millionPositive News
Gap Down
High Trading Volume
Mainz Biomed stock logo
MYNZ
Mainz Biomed
-3.5%$3.04$3.15$3.06+0.7%28,732Analyst Report
Short Interest ↑
News Coverage
Gap Down
MariaDB plc stock logo
MRDB
MariaDB
-3.5%$0.46$0.48$0.460.0%3,098Short Interest ↑
News Coverage
Positive News
Gap Down
Atlantic Coastal Acquisition Corp. stock logo
ACAH
Atlantic Coastal Acquisition
-3.5%$10.60$10.98$10.60flat295Short Interest ↓
Gap Up
Jaguar Global Growth Co. I stock logo
JGGC
Jaguar Global Growth Co. I
-3.5%$8.10$8.39$4.60-43.2%142,392Short Interest ↑
Positive News
Gap Down
Salem Media Group, Inc. stock logo
SALM
Salem Media Group
-3.4%$0.56$0.58$0.57+1.8%76,834Gap Down
High Trading Volume
XBiotech Inc. stock logo
XBIT
XBiotech
-3.4%$4.02$4.16$4.04+0.5%25,489Short Interest ↑
News Coverage
Positive News
Kaixin Auto Holdings stock logo
KXIN
Kaixin Auto
-3.4%$2.01$2.08$1.90-5.5%196,670Positive News
Gap Down
High Trading Volume
Adaptimmune Therapeutics plc stock logo
ADAP
Adaptimmune Therapeutics
-3.3%$0.73$0.76$0.77+4.4%273,280Positive News
Gap Down
Innovative Solutions and Support, Inc. stock logo
ISSC
Innovative Solutions and Support
-3.3%$7.34$7.59$7.56+3.0%5,313Positive News
Gap Down
Rallybio Co. stock logo
RLYB
Rallybio
-3.2%$4.79$4.95$3.77-21.3%79,359News Coverage
Positive News
Gap Down
Safe & Green Holdings Corp. stock logo
SGBX
Safe & Green
-3.2%$0.90$0.93$0.86-4.2%167,081Positive News
Gap Down
STRATA Skin Sciences, Inc. stock logo
SSKN
STRATA Skin Sciences
-3.2%$0.57$0.59$0.63+10.3%5,401News Coverage
Positive News
Gap Down
DermTech, Inc. stock logo
DMTK
DermTech
-3.2%$1.51$1.56$1.53+1.3%104,015Positive News
Gap Down
HUB Cyber Security Ltd. stock logo
HUBC
HUB Cyber Security
-3.2%$0.25$0.25$0.23-4.9%621,140Short Interest ↑
Positive News
Gap Down
GFR
Greenfire Resources
-3.2%$6.74$6.96$6.65-1.3%18,740Gap Down
Baijiayun Group Ltd stock logo
RTC
Baijiayun Group
-3.1%$4.01$4.14$4.07+1.5%2,204Positive News
Gap Down
Paranovus Entertainment Technology Ltd. stock logo
PAVS
Paranovus Entertainment Technology
-3.1%$3.73$3.85$3.49-6.4%21,297Short Interest ↓
Positive News
Gap Down
Stran & Company, Inc. stock logo
SWAG
Stran & Company, Inc.
-3.1%$1.25$1.29$1.25flat9,569Gap Down
Aegon stock logo
AEG
Aegon
-3.1%$4.71$4.86$4.65-1.3%2.05 millionAnalyst Downgrade
Short Interest ↓
Gap Down
Wabash National Co. stock logo
WNC
Wabash National
-3.1%$21.47$22.15$20.65-3.8%920,708Analyst Downgrade
Gap Down
Vicinity Motor Corp. stock logo
VEV
Vicinity Motor
-3.1%$0.84$0.86$0.82-1.8%45,170News Coverage
Positive News
Gap Down
Glory Star New Media Group Holdings Limited stock logo
GSMG
Glory Star New Media Group
-3.0%$0.36$0.37$0.37+2.8%63,140Short Interest ↓
Positive News
Gap Down
Akumin Inc. stock logo
AKU
Akumin
-3.0%$0.14$0.15$0.15+3.9%739,849Short Interest ↓
Gap Down
Vision Marine Technologies Inc. stock logo
VMAR
Vision Marine Technologies
-3.0%$2.57$2.65$2.70+5.1%11,057Short Interest ↓
Gap Down
Flotek Industries, Inc. stock logo
FTK
Flotek Industries
-3.0%$4.21$4.34$4.35+3.4%25,889Short Interest ↓
News Coverage
Gap Down
Yunji Inc. stock logo
YJ
Yunji
-3.0%$0.82$0.84$0.77-6.1%19,956Short Interest ↓
Positive News
Gap Down
Unicycive Therapeutics, Inc. stock logo
UNCY
Unicycive Therapeutics
-2.9%$0.61$0.63$0.63+3.2%57,712Short Interest ↑
Positive News
Gap Down
Verde Clean Fuels, Inc. stock logo
VGAS
Verde Clean Fuels
-2.9%$3.97$4.09$3.95-0.5%5,686Short Interest ↓
News Coverage
Positive News
Gap Down
Nautilus, Inc. stock logo
NLS
Nautilus
-2.9%$0.68$0.70$0.67-1.5%154,358Gap Down
LENSAR, Inc. stock logo
LNSR
LENSAR
-2.8%$3.07$3.16$3.06-0.3%1,721Gap Down
GEE Group Inc. stock logo
JOB
GEE Group
-2.8%$0.54$0.56$0.60+10.5%193,021Gap Down
Cocrystal Pharma, Inc. stock logo
COCP
Cocrystal Pharma
-2.8%$2.07$2.13$1.99-3.9%6,749Short Interest ↓
Positive News
Gap Down
Optical Cable Co. stock logo
OCC
Optical Cable
-2.8%$3.11$3.20$3.11flat4,246Short Interest ↓
News Coverage
Gap 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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