S&P 500   4,198.95 (-0.15%)
DOW   32,945.84 (-0.45%)
QQQ   349.91 (+0.43%)
AAPL   177.35 (+1.09%)
MSFT   331.65 (-0.37%)
META   264.26 (+0.85%)
GOOGL   123.41 (-0.96%)
AMZN   121.32 (+1.01%)
TSLA   198.92 (+2.98%)
NVDA   400.69 (+2.88%)
NIO   7.38 (-4.16%)
BABA   78.37 (-3.21%)
AMD   125.93 (-0.87%)
T   15.66 (+1.03%)
F   12.60 (+4.22%)
MU   72.42 (-2.04%)
CGC   0.87 (-1.17%)
GE   102.15 (-0.57%)
DIS   87.26 (-1.17%)
AMC   4.59 (-1.08%)
PFE   37.03 (-1.52%)
PYPL   61.26 (+1.73%)
NFLX   391.56 (+3.35%)
S&P 500   4,198.95 (-0.15%)
DOW   32,945.84 (-0.45%)
QQQ   349.91 (+0.43%)
AAPL   177.35 (+1.09%)
MSFT   331.65 (-0.37%)
META   264.26 (+0.85%)
GOOGL   123.41 (-0.96%)
AMZN   121.32 (+1.01%)
TSLA   198.92 (+2.98%)
NVDA   400.69 (+2.88%)
NIO   7.38 (-4.16%)
BABA   78.37 (-3.21%)
AMD   125.93 (-0.87%)
T   15.66 (+1.03%)
F   12.60 (+4.22%)
MU   72.42 (-2.04%)
CGC   0.87 (-1.17%)
GE   102.15 (-0.57%)
DIS   87.26 (-1.17%)
AMC   4.59 (-1.08%)
PFE   37.03 (-1.52%)
PYPL   61.26 (+1.73%)
NFLX   391.56 (+3.35%)
S&P 500   4,198.95 (-0.15%)
DOW   32,945.84 (-0.45%)
QQQ   349.91 (+0.43%)
AAPL   177.35 (+1.09%)
MSFT   331.65 (-0.37%)
META   264.26 (+0.85%)
GOOGL   123.41 (-0.96%)
AMZN   121.32 (+1.01%)
TSLA   198.92 (+2.98%)
NVDA   400.69 (+2.88%)
NIO   7.38 (-4.16%)
BABA   78.37 (-3.21%)
AMD   125.93 (-0.87%)
T   15.66 (+1.03%)
F   12.60 (+4.22%)
MU   72.42 (-2.04%)
CGC   0.87 (-1.17%)
GE   102.15 (-0.57%)
DIS   87.26 (-1.17%)
AMC   4.59 (-1.08%)
PFE   37.03 (-1.52%)
PYPL   61.26 (+1.73%)
NFLX   391.56 (+3.35%)
S&P 500   4,198.95 (-0.15%)
DOW   32,945.84 (-0.45%)
QQQ   349.91 (+0.43%)
AAPL   177.35 (+1.09%)
MSFT   331.65 (-0.37%)
META   264.26 (+0.85%)
GOOGL   123.41 (-0.96%)
AMZN   121.32 (+1.01%)
TSLA   198.92 (+2.98%)
NVDA   400.69 (+2.88%)
NIO   7.38 (-4.16%)
BABA   78.37 (-3.21%)
AMD   125.93 (-0.87%)
T   15.66 (+1.03%)
F   12.60 (+4.22%)
MU   72.42 (-2.04%)
CGC   0.87 (-1.17%)
GE   102.15 (-0.57%)
DIS   87.26 (-1.17%)
AMC   4.59 (-1.08%)
PFE   37.03 (-1.52%)
PYPL   61.26 (+1.73%)
NFLX   391.56 (+3.35%)

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)
Wejo Group Limited stock logo
WEJO
Wejo Group
-44.0%$0.16$0.29$0.15-5.2%1.01 millionNews Coverage
Gap Up
Trading Halted
High Trading Volume
IronNet, Inc. stock logo
IRNT
IronNet
-19.9%$0.21$0.26$0.24+14.8%2.39 millionShort Interest ↓
Positive News
Gap Down
TScan Therapeutics, Inc. stock logo
TCRX
TScan Therapeutics
-12.2%$2.80$3.19$2.48-11.4%479,040Gap Down
Society Pass Incorporated stock logo
SOPA
Society Pass
-12.1%$0.64$0.73$0.63-1.6%181,800Positive News
Gap Down
Kubient, Inc. stock logo
KBNT
Kubient
-9.6%$0.66$0.73$0.79+19.2%295,018Gap Down
Skyline Champion Co. stock logo
SKY
Skyline Champion
-9.2%$58.61$64.52$57.17-2.5%1.26 millionNews Coverage
Gap Down
High Trading Volume
BioCardia, Inc. stock logo
BCDA
BioCardia
-9.1%$1.69$1.86$1.78+5.3%26,554Short Interest ↓
Ontrak, Inc. stock logo
OTRK
Ontrak
-9.0%$0.43$0.47$0.46+8.0%85,100Positive News
Gap Down
Dogness (International) Co. stock logo
DOGZ
Dogness (International)
-8.3%$0.70$0.76$0.71+1.0%70,964Gap Down
Planet Green Holdings Corp. stock logo
PLAG
Planet Green
-8.3%$0.50$0.55$0.54+8.8%30,798Gap Down
High Trading Volume
Affimed stock logo
AFMD
Affimed
-7.4%$0.77$0.83$0.85+10.7%704,084Analyst Revision
Gap Down
Flora Growth Corp. stock logo
FLGC
Flora Growth
-7.2%$0.23$0.25$0.23-0.4%172,850Positive News
Gap Down
Precipio, Inc. stock logo
PRPO
Precipio
-7.0%$0.60$0.65$0.61+1.7%32,609Gap Down
Talis Biomedical Co. stock logo
TLIS
Talis Biomedical
-6.8%$0.48$0.52$0.49+0.1%134,339Short Interest ↓
Positive News
Gap Down
Bright Health Group, Inc. stock logo
BHG
Bright Health Group
-6.5%$11.00$11.77$9.19-16.5%395,432Analyst Report
Positive News
Gap Down
High Trading Volume
NGL Energy Partners LP stock logo
NGL
NGL Energy Partners
-6.4%$2.94$3.14$3.04+3.4%354,977Upcoming Earnings
Positive News
Gap Down
Moolec Science SA stock logo
MLEC
Moolec Science
-6.2%$2.73$2.91$2.93+7.3%556Positive News
Gap Down
HCW Biologics Inc. stock logo
HCWB
HCW Biologics
-6.1%$1.55$1.65$1.50-3.2%13,424Positive News
Gap Down
HUTCHMED (China) Limited stock logo
HCM
HUTCHMED
-5.8%$12.61$13.39$12.10-4.0%127,298Short Interest ↓
Positive News
Gap Down
SDA
SunCar Technology Group
-5.8%$15.15$16.08$18.10+19.5%694,200Upcoming Earnings
Gap Down
High Trading Volume
BEST Inc. stock logo
BEST
BEST
-5.7%$2.47$2.62$2.66+7.7%15,546Positive News
Gap Down
Nyxoah S.A. stock logo
NYXH
Nyxoah
-5.7%$7.45$7.90$7.67+3.0%1,690Gap Down
Advent Technologies Holdings, Inc. stock logo
ADN
Advent Technologies
-5.7%$1.00$1.06$1.01+0.9%280,030Short Interest ↑
Positive News
Gap Down
Lixte Biotechnology Holdings, Inc. stock logo
LIXT
Lixte Biotechnology
-5.6%$0.67$0.71$0.64-4.4%289,388Gap Down
FGI Industries Ltd. stock logo
FGI
FGI Industries
-5.4%$1.75$1.85$1.75flat4,544Short Interest ↑
Gap Down
NVDS
AXS 1.25X NVDA Bear Daily ETF
-5.4%$9.01$9.52$9.16+1.7%18.06 millionGap Down
High Trading Volume
Jupiter Wellness Acquisition Corp. stock logo
JWAC
Jupiter Wellness Acquisition
-5.4%$6.72$7.10$6.99+4.0%24,912Gap Down
Better Therapeutics, Inc. stock logo
BTTX
Better Therapeutics
-5.1%$0.68$0.71$0.72+6.6%101,415Short Interest ↑
Gap Down
Ohmyhome Limited stock logo
OMH
Ohmyhome
-5.1%$4.50$4.74$4.41-2.0%371,603Gap Up
TROOPS, Inc. stock logo
TROO
TROOPS
-5.1%$3.38$3.56$3.57+5.6%4,768Gap Down
Cenntro Electric Group Limited stock logo
CENN
Cenntro Electric Group
-4.9%$0.29$0.31$0.30+4.2%1.55 millionGap Down
Nisun International Enterprise Development Group Co., Ltd stock logo
NISN
Nisun International Enterprise Development Group
-4.9%$3.65$3.84$3.78+3.6%6,968Gap Down
Better Choice Company Inc. stock logo
BTTR
Better Choice
-4.9%$0.33$0.35$0.33-0.1%16,905Positive News
Gap Down
Bragg Gaming Group Inc. stock logo
BRAG
Bragg Gaming Group
-4.8%$3.19$3.35$3.28+2.8%1,187Positive News
Gap Down
LiqTech International, Inc. stock logo
LIQT
LiqTech International
-4.8%$3.19$3.35$3.09-3.1%28,396Stock Split
Gap Down
High Trading Volume
LiqTech International, Inc. stock logo
LIQT
LiqTech International
-4.8%$3.19$3.35$3.09-3.1%28,396Stock Split
Gap Down
High Trading Volume
Medalist Diversified REIT, Inc. stock logo
MDRR
Medalist Diversified REIT
-4.7%$5.24$5.50$5.28+0.8%4,179Positive News
Gap Down
NRx Pharmaceuticals, Inc. stock logo
NRXP
NRx Pharmaceuticals
-4.7%$0.67$0.70$0.68+2.0%29,007Analyst Revision
Gap Down
RAYA
Erayak Power Solution Group
-4.6%$1.85$1.94$1.74-5.9%36,952Positive News
Gap Down
Amylyx Pharmaceuticals, Inc. stock logo
AMLX
Amylyx Pharmaceuticals
-4.6%$23.68$24.83$24.11+1.8%1.27 millionShort Interest ↑
Gap Down
Eloxx Pharmaceuticals, Inc. stock logo
ELOX
Eloxx Pharmaceuticals
-4.6%$6.90$7.23$6.86-0.6%85,243Gap Down
Finch Therapeutics Group, Inc. stock logo
FNCH
Finch Therapeutics Group
-4.5%$0.26$0.28$0.29+9.3%45,907Positive News
Gap Down
Yatsen Holding Limited stock logo
YSG
Yatsen
-4.4%$0.90$0.94$0.88-2.0%1.02 millionGap Down
AGM Group Holdings Inc. stock logo
AGMH
AGM Group
-4.4%$1.71$1.79$1.81+5.8%2,186Short Interest ↓
News Coverage
Positive News
Gap Down
Vigil Neuroscience, Inc. stock logo
VIGL
Vigil Neuroscience
-4.4%$8.95$9.36$9.21+2.9%11,270Positive News
Gap Down
OKYO Pharma Limited stock logo
OKYO
OKYO Pharma
-4.4%$1.31$1.37$1.43+9.2%45,195Positive News
Gap Down
Genasys Inc. stock logo
GNSS
Genasys
-4.3%$2.65$2.77$2.77+4.5%4,580Positive News
Gap Down
Charah Solutions, Inc. stock logo
CHRA
Charah Solutions
-4.2%$5.41$5.65$5.47+1.1%7,339Gap Down
FlexShopper, Inc. stock logo
FPAY
FlexShopper
-4.2%$1.13$1.18$1.14+0.9%9,673Positive News
Gap Down
Millicom International Cellular S.A. stock logo
TIGO
Millicom International Cellular
-4.1%$17.24$17.98$16.80-2.6%84,903Analyst Downgrade
Short Interest ↑
Gap Down
Dynagas LNG Partners LP stock logo
DLNG
Dynagas LNG Partners
-4.1%$2.35$2.45$2.48+5.5%22,609Gap Down
Zura Bio Limited stock logo
ZURA
Zura Bio
-4.0%$5.46$5.69$5.16-5.5%245,224Gap Down
Envirotech Vehicles, Inc. stock logo
EVTV
Envirotech Vehicles
-3.9%$2.19$2.28$2.18-0.5%5,013Upcoming Earnings
Gap Down
Elys Game Technology, Corp. stock logo
ELYS
Elys Game Technology
-3.9%$0.48$0.50$0.49+3.0%69,581Short Interest ↓
Gap Down
Minerva Surgical, Inc. stock logo
UTRS
Minerva Surgical
-3.9%$0.22$0.23$0.20-8.1%1.46 millionShort Interest ↑
Gap Down
OneConnect Financial Technology Co., Ltd. stock logo
OCFT
OneConnect Financial Technology
-3.9%$3.20$3.33$3.49+9.1%68,835Short Interest ↓
Gap Down
Evelo Biosciences, Inc. stock logo
EVLO
Evelo Biosciences
-3.9%$0.15$0.15$0.15+1.0%470,647Upcoming Earnings
Gap Down
Seelos Therapeutics, Inc. stock logo
SEEL
Seelos Therapeutics
-3.8%$0.89$0.92$0.86-3.3%745,808Positive News
Gap Down
ProShares UltraPro Short QQQ stock logo
SQQQ
ProShares UltraPro Short QQQ
-3.8%$22.05$22.91$22.61+2.5%97.00 millionShort Interest ↓
Positive News
Gap Down
Trinity Biotech plc stock logo
TRIB
Trinity Biotech
-3.7%$0.89$0.92$0.93+5.1%9,520Short Interest ↓
News Coverage
Gap Down
Femasys Inc. stock logo
FEMY
Femasys
-3.7%$0.77$0.80$0.76-1.3%4,841Positive News
Gap Down
TSLQ
AXS Tesla Bear Daily ETF
-3.7%$42.93$44.59$43.21+0.7%1.13 millionPositive News
Gap Down
Molekule Group, Inc. stock logo
MKUL
Molekule Group
-3.7%$1.82$1.89$1.85+1.6%9,063Positive News
Gap Down
KWE
KWESST Micro Systems
-3.7%$2.89$3.00$2.99+3.5%12,963Analyst Revision
News Coverage
Gap Down
Organovo Holdings, Inc. stock logo
ONVO
Organovo
-3.6%$1.85$1.92$1.87+1.1%29,488Gap Down
Ardmore Shipping Co. stock logo
ASC
Ardmore Shipping
-3.6%$12.51$12.98$11.98-4.2%860,757Analyst Downgrade
Gap Down
MSP Recovery, Inc. stock logo
LIFW
MSP Recovery
-3.6%$0.61$0.63$0.62+2.8%33,734Gap Down
Decibel Therapeutics, Inc. stock logo
DBTX
Decibel Therapeutics
-3.6%$3.77$3.91$4.03+6.9%24,731Short Interest ↓
Positive News
Gap Down
GAN Limited stock logo
GAN
GAN
-3.6%$1.35$1.40$1.36+0.7%41,164Gap Down
Smart Share Global Limited stock logo
EM
Smart Share Global
-3.6%$0.85$0.88$0.85-0.2%96,348Gap Down
TSLS
Direxion Daily TSLA Bear 1X Shares
-3.6%$26.31$27.28$26.52+0.8%326,778Gap Down
NeuroPace, Inc. stock logo
NPCE
NeuroPace
-3.6%$4.34$4.50$4.57+5.3%4,440Positive News
Gap Down
Arch Resources, Inc. stock logo
ARCH
Arch Resources
-3.5%$106.25$110.16$105.98-0.3%319,275Short Interest ↓
Gap Down
Molecular Templates, Inc. stock logo
MTEM
Molecular Templates
-3.5%$0.44$0.46$0.46+3.7%20,593Short Interest ↓
News Coverage
Gap Down
Lucy Scientific Discovery Inc. stock logo
LSDI
Lucy Scientific Discovery
-3.5%$1.09$1.13$1.07-1.7%87,919Positive News
Gap Down
HUB Cyber Security (Israel) Ltd. stock logo
HUBC
HUB Cyber Security (Israel)
-3.5%$0.55$0.57$0.55+0.3%758,211Positive News
Gap Down
Annexon, Inc. stock logo
ANNX
Annexon
-3.5%$2.75$2.85$2.70-1.8%1.62 millionShort Interest ↓
Gap Down
High Trading Volume
Smart Powerr Corp. stock logo
CREG
Smart Powerr
-3.5%$1.94$2.01$1.92-1.0%28,398Gap Down
The Oncology Institute, Inc. stock logo
TOI
Oncology Institute
-3.5%$0.43$0.44$0.44+3.3%69,903Gap Down
Hempacco Co., Inc. stock logo
HPCO
Hempacco
-3.4%$0.56$0.58$0.55-1.8%121,892News Coverage
Positive News
Gap Down
Atossa Therapeutics, Inc. stock logo
ATOS
Atossa Therapeutics
-3.4%$0.84$0.87$0.90+7.1%775,408Gap Down
SPAR Group, Inc. stock logo
SGRP
SPAR Group
-3.4%$1.14$1.18$1.16+1.8%16,249Short Interest ↓
Positive News
Gap Down
Tiziana Life Sciences Ltd stock logo
TLSA
Tiziana Life Sciences
-3.4%$0.71$0.73$0.81+14.6%62,193Gap Down
Team, Inc. stock logo
TISI
Team
-3.3%$7.79$8.06$7.41-4.9%57,500Gap Down
Kuke Music Holding Limited stock logo
KUKE
Kuke Music
-3.3%$0.70$0.72$0.700.0%1,074
Direct Digital Holdings, Inc. stock logo
DRCT
Direct Digital
-3.3%$3.21$3.32$3.19-0.6%17,275Gap Down
Calliditas Therapeutics AB (publ) stock logo
CALT
Calliditas Therapeutics AB (publ)
-3.3%$17.25$17.84$17.03-1.3%4,934Gap Down
S&W Seed stock logo
SANW
S&W Seed
-3.3%$1.17$1.21$1.18+0.9%6,690Short Interest ↑
Gap Down
Adverum Biotechnologies, Inc. stock logo
ADVM
Adverum Biotechnologies
-3.3%$0.96$0.99$1.05+9.4%253,212Positive News
Gap Down
Atlas Lithium Co. stock logo
ATLX
Atlas Lithium
-3.3%$20.81$21.51$20.68-0.6%114,144Gap Down
Ellington Financial Inc. stock logo
EFC
Ellington Financial
-3.3%$12.50$12.92$12.22-2.2%1.29 millionShort Interest ↓
Gap Down
IRIDEX Co. stock logo
IRIX
IRIDEX
-3.2%$2.09$2.16$2.12+1.4%35,599Gap Down
High Trading Volume
Satixfy Communications Ltd. stock logo
SATX
Satixfy Communications
-3.2%$0.42$0.44$0.42-0.2%95,304News Coverage
Gap Down
Humanigen, Inc. stock logo
HGEN
Humanigen
-3.1%$0.15$0.15$0.15+2.8%294,302Upcoming Earnings
Short Interest ↑
News Coverage
Gap Down
Aquestive Therapeutics, Inc. stock logo
AQST
Aquestive Therapeutics
-3.1%$2.17$2.24$2.10-3.2%754,894Positive News
Gap Down
Golden Matrix Group, Inc. stock logo
GMGI
Golden Matrix Group
-3.1%$2.17$2.24$2.22+2.3%5,579Upcoming Earnings
Short Interest ↓
Positive News
Gap Down
NeuroSense Therapeutics Ltd. stock logo
NRSN
NeuroSense Therapeutics
-3.1%$1.55$1.60$1.55flat36,510Positive News
Gap Down
enVVeno Medical Corporation stock logo
NVNO
enVVeno Medical
-3.1%$3.10$3.20$2.93-5.5%79,320Positive News
Gap Down
High Trading Volume
Companhia Siderúrgica Nacional stock logo
SID
Companhia Siderúrgica Nacional
-3.1%$2.48$2.56$2.41-2.8%1.76 millionGap Down
LuxUrban Hotels Inc. stock logo
LUXH
LuxUrban Hotels
-3.1%$3.44$3.55$3.52+2.3%26,389Gap 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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