There are few key elements of the morning gap. It is important to understand these these building blocks first to know how to trade the morning gap.
What you have to remember, is that you have a very short time window to execute your trades and for that it is important that you have to be able to quickly process all the clues that are given to you.
Volume
Probably volume is the most important tool that you can have available to you. Being a trader, it is essential for you to understand the significance of high or low volume, especially when it occurs at important support and resistance levels.
When high volume is attacking a support or resistance area and pushing through it, then this indicates that the sellers or buyers are in control and that in order to actually signal a continuation in trend for a larger period of time enough energy has been exerted.
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Volume
Open interest are also referred to as open contracts or open commitments. The total number of derivative contracts are denoted by them, like futures and options, that are currently active on a specific underlying security. The flow of money into the futures market is measured by open interest. There must be a buyer of that contract for each seller of a futures contract. Thus a seller and a buyer are joined to create only one contract. Therefore, we need only to know the totals from one side or the other, buyers or sellers, not the sum of both in order to determine the total open interest for any given market.
The increase or decrease in the number of contracts for that day is represented by the change in open interest that is reported each day, and it is shown as a positive or negative number.
Example of Open Interest
For the IBM call option that hit 90 and expiring in January 2007, on February 10, 2006 the total open interest on was 10251.
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