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 opening price strategy? ›

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.

What is the 3 5 7 rule in trading? ›

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.

How do you calculate opening price? ›

The opening price of a stock (or any asset on an exchange) is the price of a security when it opens trading on the exchange at the beginning of the trading day. As a rule, the opening price is formed using the lowest ask of the security and the highest bid in the first 30 seconds of the exchange.

What is the 11am rule in trading? ›

​The 11 am rule suggests that if a market makes a new intraday high for the day between 11:15 am and 11:30 am EST, then it's said to be very likely that the market will end the day near its high.

What is the 10 am rule in trading? ›

The "10 AM Trend Time" concept is crucial, particularly for day traders or active investors in the markets. The first 30 minutes are typically volatile with significant moves, but the period from 10 AM to 10:30 AM often determines the activity for the rest of the day. It decides whether the market will chop or trend.

What is the price strategy in trading? ›

In simple terms, price action trading is a technique that allows a trader to read the market and make subjective trading decisions based on recent and actual price movements, rather than relying solely on technical indicators.

What is average opening price? ›

Average Opening Price means the CFD Ask price quoted by us when opening a long Position where you are a buyer, and the CFD Bid price quoted by us when opening a short Position where you are a Seller.

What is the best strategy in price action? ›

Common price action trading strategies include:
  • Trend trading.
  • Trading based on pin bar patterns.
  • Trading based on inside bar patterns.
  • Trend following retracement entries.
  • Breakout entries.
  • Head and shoulders reversal trades.
  • Tracking the sequence of highs and lows.
Apr 6, 2024

What is 90% rule in trading? ›

The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.

What is the 80 20 rule in trading? ›

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

What is the 3 30 formula in trading? ›

This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].

What is the difference between opening price and offering price? ›

In an IPO offering, the company sells the shares to its investors at a particular price, which is known as the offering price. Now when the market opens for trading, the price at which these shares start to trade is different from the offering price and is known as the opening price.

Does after hours trading effect opening price? ›

After-hours trading can have a significant impact on stock prices. Price volatility can be more pronounced during after-market trading due to lower volumes. If a company releases strong earnings after the market closes, its stock price may surge in after-hours trading as investors react to the news.

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 is an example of buy to open? ›

Example of Buy to Open

If a trader has a bullish outlook on XYZ stock they might use a buy to open options strategy. To do that, they'd purchase shares or buy call options. The trader must log in to their brokerage account then go to the order screen.

What is an example of a typical price? ›

For example, consider a period of one day. If the high for that day was 1.2200, the low was 1.2080, and the closing price was 1.2150, then the typical price for that day would be: TP = (1.2200 + 1.2080 + 1.2150)/3 = 1.2143.

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