The opening price is the price a market begins the session at, the first transaction when the market opens.
This one’s pretty straightforward. Assume the first transaction price for stock $XYZ is $100 – when the market opens at 9:30 am E.T. The opening price of stock $XYZ is $100.
Figure 1.1 Opening Price Example
Notice the gaps between the opening price of each session and the previous session’s closing price. The opening price of a session and the closing price of the previous session are rarely ever the same. We can thank after hours and pre-market traders for that!
Therefore, don’t let price gaps and seemingly illogical changes in the opening price session-over-session discourage you too much. Remember, the close price is always the most important data point; very few traders are going to let a session end holding a position their uncomfortable with. The close price is the best reflection of market sentiment.
In addition, bad news, a poor quarterly earnings release/conference call, etc., can affect the demand for shares of a company. If traders aren’t willing to fork over as much for shares of the company – the price is going to fall before the market opens.
Day-traders are typically concerned with the opening price, and some traders construct systems/strategies predicated on the opening price – such as a “gap-and-go” strategy. Depending on whether prices opened substantially lower or higher, the strategy looks to exploit strong buying/selling pressure intrasession. A considerable gap between the current session’s opening price and the previous session’s closing price typically reflects strong buying/selling.
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