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The "GAP" Opening Bookmark

The next little "gem" that you have to be aware of is something called a GAP UP or a GAP DOWN opening. This can be either the best

The next little "gem" that you have to be aware of is something called a GAP UP or a GAP DOWN opening. This can be either the best thing you have ever seen, or a horrible nightmare depending on which one you get! Here is the deal:

Let's suppose you bought XYZ for your 50 dollars, and at the end of the day you call your broker and he says, "Yup, XYZ went up to 53 today." You are thrilled. Now tomorrow morning comes and HOLY COW--XYZ is opening at 54.50! What happened? That is called a Gap Up, and what happened is that the market makers still trade on systems called Instinet after hours. Whatever it was that made XYZ rise during the previous day continued into the evening! So while you were asleep, your stock was going up! That's good, but of course it can work in reverse, and you could awaken to see XYZ opening at 45. What's worse is that stop loss orders won't do a thing against gaps. Sure, your order will fire off in the morning, but you just lost 5 dollars a share!! That is the most dangerous thing about the market bar none, and every good trader has lived through it. That is why true "day" traders will sell before the close every day, because no one knows what might happen during the night! Don't let this scare you off; you are only interested in good companies that shouldn't gap down, but you have to realize that it can happen!

To be a good trader, you really should have some type of quote system that gives you real time quotes over the Internet. That way you really are in control of what you are buying and at how much. It isn't very expensive (under 20.dollars a month), and it will become a necessity as you get better at trading. A lot of brokerages offer their customers free real time quotes, so make sure you ask about that when you sign up.

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