Opening Price: Definition, Example, Trading Strategies (2024)

The opening price is the cost of a security when it first trades at the opening of an exchange. The opening price plays a crucial role in shaping the day's trading narrative. Below, we explore the opening price further, including the trading strategies traders employ with the opening price in mind.

Key Takeaways

  • The opening price is the first price at which a security trades at the open.
  • The opening price is different from the previous day's closing price.
  • There are several day-trading strategies based on the opening price of a market or security.

How Opening Price Works

The Nasdaq uses the "opening cross" approach to calculate opening prices based on the orders that accumulated overnight. Typically, a security's opening price differs from the last day's closing price. After-hours tradinghaschangedinvestor valuations or expectations forthe security.

Factors that Can Affect the Opening Price

After the market closes, corporate announcements and other news can change investor expectations and the next day's opening price.Some investors may try to buy or sell securities when large-scale disasters occur after hours.

Not all orders are executed during after-hours trading. There is much less liquidity during this time, producing wider bid-ask spreads. This makes orders unattractive because it's more challenging to complete a transaction at a predictable price, and limit orders often won't be filled.

When the market opens the next day, this large amount of limit or stop orders—placed at prices different from the prior day's closing price—causes a discrepancy between supply and demand. This causes the opening price to move off the previous day's close toward prices corresponding to the overnight changes.

Predicting the Next Day's Opening Price

While predicting stock prices has led to financial ruin for even the best investors, there are some ways to gauge a market's opening direction.

The most obvious is to review the after-hours or premarket activity. Some investors trade shares outside the stock market's regular trading hours, though the volume traded is almost always lower. If a stock increases in value after hours and there's no significant news overnight, there's a good chance the stock will have an opening price above the previous day's closing price. The same applies, of course, if it decreases overnight.

Premarket trading happens before the market opens, so the price at which premarket trades occur can also be a helpful way to predict the opening price.

Many investors also review what's happening in international markets to gauge how the opening will go. Trading hours vary from country to country but typically align with regular work hours. For example, in Japan, trading occurs from 9 a.m. to 11:30 a.m. and 12:30 p.m. to 3 p.m. local time, that is, it opens at 7 p.m. and closes at 1 a.m. Eastern time.

While many factors influence the prices of stocks across different markets, if another country's markets rose while the American stock market was closed, investor sentiment is often that the American market is likely to open higher than its closing price.

Opening Price Trading Strategies

There are several day-trading strategies based on the opening of a market. When the opening price is quite different from the prior day’s close, thatcreates aprice gap. Day traders use a strategy known as the “gap fade and fill.” Traders try to profit from the price correction that usually occurs when there’s a sizable price gap at the opening.

Another popular strategy is to fade a stock showing strong premarket indications contrary to the rest of the marketor similar securities. When a disparity is present from premarket signals, a trader waits for thestock to move at the open, going against the rest of the market. The traderthen takes a position in the stock in the market’s general direction when the momentum and volume of the initial contrasting stock price movementdiminishes. When done correctly, these are high-probability strategies designed to achieve quick, small profits.

Opening Price Example

On Jan. 10, 2024, the opening price for Apple (AAPL) was $184.70. The stock rose to a high of $186.36, but it closed at $186.19.

Can You Buy A Stock at Opening Price?

Yes, it's possible to buy a stock at its opening price. If you place a market-on-open order to buy a stock before the market opens, you'll buy shares at the opening price.

What Is the 10 a.m. Rule?

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. For example, if a stock closed at $40 the previous day, opened at $42 the next, and reached $43 by 10 a.m., this would indicate that the stock is likely to remain above $42 by market close.

Are There Strategies For Trading Based on the Closing Price of a Stock?

Yes, several strategies are used that focus on the closing price of a stock. The closing price—the last price at which a stock trades during a regular session—is the focus of the end-of-day trading strategies, which involves deciding trades based on the price moves at the end of the trading day. Traders look for signals from the closing price to predict the next day's market direction. A prominent method is the closing price reversion strategy, where, if a stock's closing price deviates significantly from its historical average, traders try to profit should it revert to the mean. Closing price breakout strategies involve looking for stocks whose closing prices have broken out of a particular range. For instance, a breakout above a resistance level could indicate a bullish trend.

The Bottom Line

The opening price for a stock is the price it trades immediately after the stock market opens at 9:30 a.m. Eastern time. It can be close to the price at the previous day's market close or shift significantly because of overnight news. Knowing the opening price for a stock and how it changes because of overnight trading is crucial information, especially for those trading early in the day.

Opening Price: Definition, Example, Trading Strategies (2024)

FAQs

What is an example of opening price? ›

Examples of opening price

The stock of Company XYZ is listed on the stock exchange on a specific trading day. The initial exchange of XYZ stock takes place at 9:30 AM, costing US$50 per share. This price is regarded as the day's opening price.

What is the 3-5-7 rule in trading? ›

A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.

What is the opening price strategy? ›

The strategy revolves around identifying stocks that either open at their highest price of the day (Open High) or lowest price of the day (Open Low). These price levels serve as crucial signals for potential future price movements. Volatility utilisation: It thrives in volatile market conditions.

What is the 11am rule in trading? ›

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

What is the 10 am rule in trading? ›

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

How to predict stock opening price? ›

After-hours trading commonly helps indicate the next day's open. Extended-hours trading in stocks takes place on electronic markets known as ECNs before the financial markets open for the day, as well as after they close. This activity can help investors predict the open market direction.

What is 90% rule in trading? ›

Understanding the Rule of 90

According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

What is the 80% rule in trading? ›

The 80% Rule is a Market Profile concept and strategy. If the market opens (or moves outside of the value area ) and then moves back into the value area for two consecutive 30-min-bars, then the 80% rule states that there is a high probability of completely filling the value area.

What is the 50% rule in trading? ›

The fifty percent principle is a rule of thumb that anticipates the size of a technical correction. The fifty percent principle states that when a stock or other asset begins to fall after a period of rapid gains, it will lose at least 50% of its most recent gains before the price begins advancing again.

How is opening price calculated? ›

To compute the Opening Price in such a case, the previous day Closing Price is used as the Open Price. All eligible orders will be executed at the previous Close Price. The pending orders will be changed to Limit orders at the previous Close Price and added to Order Book for normal trading.

How is opening price set? ›

On the NYSE and ASE, the specialist determines the opening price by looking at his/her “book.” The specialists are supposed to select the one price that clears out the maximum number of orders; i.e. by looking at the buy and sell offers and choosing a single price will execute the most orders (shares).

What is opening trade price? ›

The opening price is the price at which a stock trades first when the exchange opens on the trading day.

What is the 15 minute rule in trading? ›

You can do a quick analysis, adjust your trading strategy and get into a good position well after the crowd pulls the trigger on a gap play. Here is how. Let the index/stock trade for the first fifteen minutes and then use the high and low of this “fifteen minute range” as support and resistance levels.

What is the 2 day trading rule? ›

Any funds used to meet the day-trading minimum equity requirement or to meet a day-trading margin call must remain in the account for two business days following the close of business on any day when the deposit is required.

What is an open price? ›

In trading, the term open price or opening price denotes the price at which a security or other asset is sold at the start of trading hours on a trading day. This is the price at which the first trade in a specific asset on a trading day is transacted.

What is the opening price of a business? ›

The opening price is the price at which a stock trades first when the exchange opens on the trading day.

What is an example of an open offer? ›

An example of how and open offer works

So, let's suppose you are a shareholder who owns 300 shares in a company. The company announces an open offer and you can buy one additional share for every five you own. So, that's 60 overall. Known as the 'basic entitlement', it's a guaranteed offer that can't be scaled back.

What are the examples of opening stock? ›

Example:

Opening Stock - At the start of the year, a retail store has Rs. 10,000 worth of clothing, Rs. 5,000 worth of raw materials, and Rs. 2,000 worth of partially assembled furniture.

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