The term “gap trading” or “gapping” denotes a trading strategy in which investors take advantage of market gapping.
Investors may go short on securities which they expect to gap down at the opening of the next trading day. If the securities in question gap down, the short sellers profit on the difference between the higher closing price at the close of the previous trading day and the lower opening price on the following trading day.
Investors may also go long by ordering the purchase of securities which they expect to gap up when the relevant exchange opens. If the securities do in fact gap up, the investor profits by selling the securities at a profit at the opening of the trading day.
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