Trading the Opening Prices
One of many things to consider when trading stocks are opening prices; the world has changed over the last several decades and stock prices that close the previous day or on Friday last week are no longer worth the same amount when they open for morning trading. If you consider yourself a short term trader or day trader it is important to be versed in the fundamentals of opening prices.
First off, you should consider the previous days events, any news over the evening or night as well as in the morning before the markets open can affect stock prices. It is also important to understand the strategies of the stock market specialists. At the NYSE and AMC exchange, the specialist will determine the stock price by looking at his or her book and choosing a price that will maximize the ability to clear out all of the stock’s orders.
The NASDAQ market open is different. It is based on a two stage round robin. During the first stage each posts a single bid and asks for a price pair. During the second stage, each entity can then revise their bids after seeing what other entities are willing to pay once the market opens.
A term that you should be aware of is called a gap. A gap in opening prices usually means that after the bell and the market closed, the company in question released information that directly affected the price per share. In the morning, the price may drop or fall considerably causing a gap in price.
A recent gap occurred with companies that are in the art/stamps sector, where we saw a tremendous drop in value due to news over they were playing on pyramidal schemas and the money to refund their investor was just insufficient.
Dear Investing Blog:
Benjamin Graham had a solid approach to investing. He had several principles to buying stocks, and as a believer in a comprehensive and independent research, I think that seven of these are worth sharing:
1. The companies should be soundly managed.
2. The companies have demonstrated earning capacity with a likelihood that this will continue.
3. The companies should have consistently high returns.
4. The companies should have a prudent approach to debt.
5. The businesses of the companies should be simple and investors should have an understanding of the companies.
6. Assuming that all these thresholds are satisfied, the investment should only be made at a reasonable price, with a margin of safety.
These principles align with our ideals at Stillwater Capital of providing the potential for clients to preserve and grow their capital using a risk-controlled approach to investing.
Thanks for listening! — Jack Doueck
Jack Doueck
Stillwater Asset Backed Strategies