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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: dj8000 who wrote (3426)	12/1/1998 12:49:00 AM
From: shane hartman	Read Replies (1) \| Respond to of 43080

>what's going on???? why that big gap ?? A lot of people placed market buy orders and lost.

To: dj8000 who wrote (3426)	12/1/1998 7:06:00 AM
From: LastShadow	Respond to of 43080

Gaps The opening price is the most critical piece of information for a daytrader. The specialist or mm will open the market in balance - or attempt to at least. He chooses where to start the day in a manner that will fill open market orders at the best price. It is a simple supply and demand curve. If he has a lot of market and limit orders he must gap the price to trigger similar sell orders, or to engender selling. Therefore, for his own benefit he will open it at the highest possible price. If the demand is satisified and noone else wants it, the price has to drop to trigger selling and protective stops. He makes his money off the spread after all, and if he isn't moving shares, then he has to widen that or amke a better market. This is the fundamental premise for the gap plays. If the imbalance of the supply and demand is to the high side, it gaps open up. To the low side it gaps down. Once that initial demand is met, then it is up to the market as to whether the equity is now seen as a good buy or ripe for selling/shorting. That process takes about an hour to cycle through, although it can take as little as 20 minutes in fast markets. Once the market sentiment is know - i.e, the stock retraces to the opening hour's high or low, then any crossing of either threshold will establish the market trend for the moment. Once that momentum is in place, bears rush to get on and short if its going down, and bulls jump on if its rising. this is what the Point of Balance Oscillator I posted a few months ago attempts to quantify for end of day traders - where the Bull/Bear Fear level is in terms of geting in on the trend. So where the price opens, especially on a gap is of tremendous signifigance. It tells you where the paoint of balance is for the specialist, and the volume and subsequent analysis tells you where it is going. In the case you asked about, there was a lot of initial demand, and no continued demand - the market didn't see the value for the equity at that price, and so to make a market in the stock the mm/specialist changed prices to reflect what was wanted - in that case to exit. This is why looking at the trding volume on huge drops or climbs is important. If its all 2100 shares or less in size, then it isnt the institutional/hedge/mututal/brokerages that are buying obviously. It also helps define what is going on end of day when a stock tapers off or climbs. The most important thing for the brokerage's traders is to make sure they buy/sell at the VWAP - the Value Weighted Average Price. One has a lot of explaining to do if you bought 100k shares for your house a dollar above (or the converse if below) the VWAP for the day, so they will play with that at end of day at times. If the volume is insignificant, then they were massaging the numbers for the boss. After all, if you really want to keep driving the expensive cars, then you need to make sure you satisfy your big customers... lastshadow