A bit more information...

Hey guys,

I thought today while i was driving to uni for another prolonged study session for my international finance exam tomorrow that i should maybe explain a few things that had me stumped when i first started trading and playing with the share market and im sure some people might like to know if they dont follow the markets as much.

One of the questions i get asked a bit is why can't you just sell out if it is going to be a bad day? Its a good question. With the ASX lets say america just announced that Lehman brothers just collapsed and everyone is just selling like crazy and the dow jones closes down over 3%. A strong indicator that our market will be down also because people would be fearing that our market is weak or the banks might collapse. What ever the reason people will want to be selling.
What happens is there is a pre market match up. What this is is that for 3 hours before the market opens at 10am EST or 7am WST (fuck you daylight savings) there is a match up going on between the buyers and sellers. What this means is if everyone is trying to sell and people are taking their bids off the screen from the previous days or weeks or what ever and buyers are disappearing because everyone is scared and no one is buying then the sellers will be putting their orders in.

Say WBC - Westpac Bank closed at $25 the day before. now everyone thinks its going to crash and the closes bid (price someone is willing to pay for westpac is $21)the match price would say start at $21 and the sellers are piling up and trying to sell down to anyone who is willing to take it and then it might even go lower while the prices match up. Now when the market opens properly at 10am EST this will be the price and it will 'gap down' so it would have already lost say 10% for the day already!! so if you bought in the afternoon and the dow crashed then market opens 10% down that is down nothing you can do. And this is one of the risks if you are trading short term and why people always put so much emphasis on what happens over seas and what might happen in the markets.
We apply charts to these to try and predict but if a unforseeable event such as the lehman brothers or bear sterns happens then nothing can be donw and the market will just 'gap down'. Look at a candle stick chart to see what i mean but i will go more into Gaps and some more signals that they give in another post.

To much to do with uni, just thought i would clear things up with you guys. It can also gap up the other way which is fannnntastic if you bought in the afternoon :)

Hope this helps :)