Stock Order imbalances may occur when major news is released regarding a stock, such as earnings, a change in future revenue or earnings guidance, or merger and acquisition rumors. If some traders have information on a stock that they believe has not yet been incorporated into the price, they may take a long (or short) position given the nature of the news and temporarily increase the imbalance on the stock. Imbalances can move securities to the upside or downside, but most imbalances get worked out within a few minutes or hours in one daily session. Traders can protect themselves against the volatile price changes that can arise from order imbalances by using limit orders when placing trades, rather than market orders.
During the last hour of the trading day, and in the two minutes prior to the market open, the major exchanges publish information on volume imbalances for individual stocks. Market-on-close orders are orders to buy or sell shares at the last market price of the day at or just after the closing bell. These order imbalances indicate an excess of buy or sell volume at the end of the trading day.
Investors evaluate order imbalance data to understand the general sentiment and direction the market is headed.
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