The best way to visualize a stock’s single-day open, close, high, and low prices is via a candlestick chart. These charts display a vertical bar with lines extending from its top and bottom for each trading session.
If a stock closed higher than it opened, then the top of the candle represents its closing price, and the bottom represents its opening price. If a stock closed lower than it opened, the opposite is true. In either case, the candle’s top “wick” represents a stock’s intraday high, while the bottom wick represents its intraday low.
Why Don’t Stocks Open at Their Previous Close Prices?
If a stock’s closing price was $5 at the end of a day’s trading session, you might assume that its opening price the following morning would be $5 as well, but in practice, this is rarely the case. Most often, stocks go up or down in price (by at least a little bit) during the hours when markets are closed.
A stock’s price—at any point in time—is determined by supply (the ask side of the market) and demand (the bid side of the market). When supply exceeds demand, a stock’s price falls until equilibrium is reached; when demand exceeds supply, a stock’s price rises. Due to both after-hours trading (which is allowed by some brokerages) and queued buy and sell orders waiting to execute when the market opens, the ratio of supply to demand for a given stock continues to fluctuate after markets close, causing its price to fluctuate in step.
News that is released when markets are closed can impact a stock’s supply and demand significantly—sometimes so significantly that its opening price can be radically different from its previous close. For instance, if a company hosts an earnings call after the market closes, and it beats its earnings estimate by a significant margin, its open price the following day might be significantly higher than its previous close.
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This story was originally published September 20, 2022 7:53 PM.
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