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

Opening Price: Definition, Example, Trading Strategies? ›

Examples of opening price

What is the opening price strategy? ›

Predicting the Next Day's Opening Price

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.

What is open price in trading? ›

The opening price is the price at which a stock trades first when the exchange opens on the trading day. Usually, for equities, the market timings are from 9:15 am to 3:30 pm.

What determines the opening price of a stock? ›

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 the opening range strategy in trading? ›

The Opening Range Breakout (ORB) is a classic trading strategy designed to capitalise on volatility during the first few minutes following the market's opening bell. Rooted in principles laid down in the 1960s, the strategy remains relevant today for both stock and forex markets.

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? ›

The 10 a.m. rule in stock trading is a strategy suggesting that traders should wait until around 10 a.m. before making significant trading decisions. The rationale behind this rule is to allow the market to stabilize after the initial flurry of activity that follows its opening.

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 closing price in trading strategy? ›

Investors submitting market or limit orders into the closing auction may adversely affect the closing price, especially when the size of the order is large relative to the average close auction volume.

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.

How does opening price point influence sales? ›

Opening price point is the cheapest item in the line (rock bottom price). It influences sales because it lures customers in, see what they want to purchase (not always lowest price).

Does pre-market trading affect opening prices? ›

Because of the limited number of trades and low volume, pre-market moves are by no means an indicator of a share price's movement during normal trading hours. An asset's price could reverse or stall when the markets open, which could leave a pre-market trader out of pocket.

What is the best strategy for range trading? ›

Effective Strategies for Trading Range-Bound Securities

Once the range, or price channel, is established, the simplest trading strategy is to buy near the support level and sell near the resistance. Alternatively, when trading options, one could purchase calls near support, and purchase puts near resistance.

What is the early morning trading strategy? ›

The early morning range breakout focuses on the size of the gap and also on the breakthrough its high/low. In this strategy, we need to trade in the direction of the breakout when we identify the boundaries of gaps. The breakouts later in the day should be taken as caution.

What is an example of a range trading strategy? ›

Range trading is an active investing strategy that identifies a range at which the investor buys and sells at over a short period. For example, a stock is trading at $35 and you believe it is going to rise to $40, then trade in a range between $35 and $40 over the next several weeks.

What is the opening price and closing price? ›

An opening price is the first price a stock trades at when the market opens at 9:30 a.m., and a closing price is the last price it trades at when the market closes at 4:00 p.m.

What is the first 30 minutes of the stock market? ›

The first 30 minutes of trading in the stock market is often referred to as the "opening range". It is considered to be a crucial time for traders, as it can set the tone for the rest of the day. The opening range can be defined as the highest and lowest prices traded during the first 30 minutes of the day.

What is the closing price strategy? ›

Investors submitting market or limit orders into the closing auction may adversely affect the closing price, especially when the size of the order is large relative to the average close auction volume.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Manual Maggio

Last Updated:

Views: 5883

Rating: 4.9 / 5 (49 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Manual Maggio

Birthday: 1998-01-20

Address: 359 Kelvin Stream, Lake Eldonview, MT 33517-1242

Phone: +577037762465

Job: Product Hospitality Supervisor

Hobby: Gardening, Web surfing, Video gaming, Amateur radio, Flag Football, Reading, Table tennis

Introduction: My name is Manual Maggio, I am a thankful, tender, adventurous, delightful, fantastic, proud, graceful person who loves writing and wants to share my knowledge and understanding with you.