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Why does the Australian share market gap so much, compared to other share markets?

The Dynamics of the Australian Share Market: Deciphering Gap Movements

The Australian Securities Exchange (ASX), a central figure in the global financial arena, frequently experiences ‘gap’ movements. These gaps are where the market opens at a significantly different price than its previous close. This phenomenon, while common in many markets, is particularly notable in the ASX, driven largely by the influences of global equity and commodity markets. The reliance of the Australian economy on these international sectors accentuates this effect.


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Global Influences and Timezone Implications

The geographical location of Australia places the ASX in a unique position, where overnight shifts in other major financial centers profoundly affect its opening market conditions. Market players, from individual traders to institutional investors, must therefore keep a keen eye on global market trends, adjusting their strategies to account for these international influences, magnified by time zone differences.

Market Size and Liquidity: Influencing Gap Dynamics

Compared to larger markets like those in the United States or the United Kingdom, the ASX operates on a smaller scale with less liquidity. This aspect makes the market more susceptible to gap movements. A smaller pool of buyers and sellers can lead to more pronounced price fluctuations, particularly noticeable at the opening of the trading day.

Navigating a Gap-Prone Market: Strategies for Traders and Investors

Understanding the intricacies behind gap movements in the ASX is crucial for traders and investors aiming for success. Recognizing the external and internal factors that contribute to these gaps enables market participants to better anticipate and manage potential risks, turning these market characteristics into strategic advantages.

Applying Insights for Market Success

Effective trading in the ASX goes beyond local market analysis; it requires a global outlook and a keen understanding of market liquidity. By keeping an eye on international market movements and preparing for potential gaps, traders and investors can better position themselves in the ASX. This approach, combining global awareness with local market knowledge, is key to enhancing market performance and achieving trading success.

“You should review your rules at the beginning of the day and review your trading at the end of the day. If you followed your rules, even if you lost money, pat yourself on the back” – Van K. Tharp

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