Friday/weekend Jump trades

Can somebody give me a dumbed down explanation of weekend jump trades in forex?

Like at what point should a trader try to be getting in?

Time on Friday and obviously knowing what the trend is doing?
Is there a certain signal to watch for that might represent a huge change?
What interval you think should be watched to make a decision? 1 hour, 4 hour or daily.

Thanks guys/gals in advanced.

Cheers

Me personally I dont like to have trades go over the weekend. However if I did I would stick to the charts that you are using and use the daily for confermation that the trend might continue over the weekend. I will say from what I have seen on charts there can be pretty big price swings but generally speaking the 4 hr charts dont seem to change a whole lot over the weekend.

I was so engrossed in watching the screen on Friday - I left 3 positions open :rolleyes: it will be interesting to see what’s happened when business resumes - another lesson learned :stuck_out_tongue:

I think your time would be better spent trying to look for trades around the Euro session open, or the US session open. The weekend gap isn’t really regarded as a trading opportunity. “Closing the gap” on sunday evening is something I’ve heard of people doing, but still would recommend stick to the major sessions. Why make things harder on yourself when you’re starting out? Ain’t no bonus points for taking the hard route in this game :wink:

oh damn it! a rational voice. I hear ya. Thank you for the logical advice. I had an itchy trigger finger… lol

Hi,

By now you obviously know that you’re talking about trading the opening gap. This is actually known as ‘the highest probability trade of the day’ in some circles BUT NOT ON FOREX. In the stock market: there are opening gaps somewhere every single trading day and there are even statistics that show which days have the highest probability of the gap being closed on the same trading day. I don’t believe that this is a viable method of trading FOREX though (although I seem to remember seeing a post somewhere around here some time ago where somebody was saying that they are successful at trading the Friday / Sunday opening FOREX gap but I cannot remember who it was).

Anyway: if you STILL want to try it there are many different methods of trading gaps. Here are two (but again be advised they were developed by stock traders):

If there is a ‘reasonable’ size gap ‘up’ on Sunday you simply go short at market as soon as you can after the open. Your stop is equal to the size of the gap. You first profit target is one half the size of the gap and if this is reached you move your stop to breakeven on the trade. Your second profit target is the closing of the gap.

Another method is the ‘three day unfilled gap reversal’ i.e. you would place a sell stop order just below the low of the bar that caused the gap ‘up’ after the close of that trading day and of course only if the gap had not been closed during that trading day. This sell stop order would be valid for the next three days. If it is executed your initial stop is the high of the bar that caused the gap ‘up’. Once you’re in the trade you trail your stop until stopped out (remember that most times markets will reverse direction once the gap has been close). I guess you could also simply make your profit target the closing of the gap. If your stop order is not executed within three days then it’s cancelled.

In both example above: I make the assumption that it’s an opening gap ‘up’ i.e. the rules are obviously reversed if it’s an opening gap ‘down’.

Well there are two systems for you (two systems which I KNOW work for trading stocks anyway) but I’m sure if you use Google you’ll find DOZENS of others. Obviously: the ‘right’ way to see if any of them will or will not work on FOREX is to PAPER TRADE them using a good few months (or better yet a good few years) worth of data. In the stock market anyway: there are people that trade nothing else BUT gaps.

Regards,

Dale.

Edit:

The systems detailed above are detailed in the books ‘Mastering The Trade’ by John F. Carter and ‘Street Smarts - High Probability Short Term Trading Strategies’ by Laurence A. Connors and Linda Bradford Raschke (both excellent books by the way and many other trading systems and methodologies are detailed in them some INDEED for trading FOREX).

Dale,

Thank you very much for taking the time to lay that out for me. I will definitely take a little time in practicing gap trading before I do anything with any real money. It sounds like there might be a little more to it then just thinking. “okay its the weekend, the trend all week has been this, its gonna jump and do this or that”

I am also thinking about tracking down some back testing software, would you have any suggestions? Something that I could use that would allow me to test a currency for say like, EurUsd’s Friday to Sundays statistics or Sunday opens in the month of February? If nothing comes to mind, Im sure I can google that out.

Anyway, thank you again for your assistance.

Cheers!

Hi,

Always a pleasure.

As for backtesting software: you’re asking the wrong person here!!! LOL!!! I don’t believe in automated backtesting (call me old fashioned if you like) i.e. I have much more faith in paper trading (literally with pen and paper). To backtest what you want to backtest by paper trading should be quite easy though i.e. you know you’re only going to be looking at the closing price on a Friday and the opening price on a Sunday and there ARE only fifty two weeks in a year so that’s as many trades as you’re going get per year. If you do indeed do this backtest please post your results if you don’t mind i.e. I myself would be interested to know the results as would many other people I would think. As a matter of fact and come to think of it I’d be REAL interested in your results. The reason being that the closing of gaps in the stock market is a concious effort on the part of traders to close the gap (one of those ‘self fulfilling prophecy’ type of things) and I would not think that this applies to FOREX. Also: in the stock market not all gaps are created equal i.e. there are different types of gaps that happen for different reasons but that’s going a bit far for the purposes of this discussion I think.

One other thing you could look at (I’m assuming you’re only interested in trading FOREX) are currencies that are NOT traded around the clock. That way you’d get a gap almost every other day. Here’s a link to the trading times at Deltastock (below) but I think that these times may be broker dependant.

Trading Hours | Forex | Precious Metals | CFDs | BSE Sofia

Of course: there are always stocks and commodities to trade ;)!!! (I’ve been trying to get a forum going here for stocks and commodities trading for a good long while now but I’m not getting the ‘votes’ so it’s probably not going to happen. There are many good trading systems and methdologies out there, gap trading being one of them, that work flawlessly on stocks and commodities but ‘fall over’ on FOREX and I don’t understand why people limit themselves to trading FOREX only).

Anyway: let us know how you get on with this.

Regards,

Dale.

Edit:

By the way: both of those books mentioned can be found in .PDF format on the Internet nowadays (it’s only ‘twats’ like me that paid for them). The ‘Street Smarts’ one mentioned has one or two other ‘gap plays’ in it but they’re a little more intricate than those that I detailed above. Also: ‘Mastering The Trade’ is an excellent ‘all rounder’ book (and alright: John F. Carter goes into a LOT of detail on trading gaps i.e. more than I’ve given you). Then again: how many different methods of trading gaps can there be??? I mean: the gap closes or it doesn’t. It’s pretty much that simple really i.e. it’s how you control you risk that will ‘make or break’ gap trading I guess.

Oh and here’s a link that will show the CURRENT Interbank Spot Forex Rates LIVE EVEN over the weekend so you know even before the open where the open on Sunday night is going to be (or if you’re in a trade you know what’s going to happen to it at the open)!!!

Interbank Spot Rates | Currency Rate | Spot Exchange Rate | Oz Forex

I think I am going to stick with what I know for now. I was mainly curious about gap trading more than anything. You have definitely answered most of my questions. I to like having the books, some days I can’t stand looking a a computer screen.

Again, Thank you for your time!

p.s. I am only interested in Forex now. heh, the stocks I like, I wouldn’t be able to afford right now anyway. Futures seem really cool, but again, those are way out of my league right now.

Cheers!

No problem at all.

As I keep saying of late to everyone: some additional ‘general knowledge’ about things never hurt anyone. Just be careful of ‘information overload’ (but that I believe applies more to ‘information overload’ from the so-called ‘experts’ or ‘analysts’ because THAT will only confuse you but I don’t think you can have too much ‘technical’ information).

Don’t ‘sell yourself short’ (no pun intended) by saying that stocks and commodities and futures are ‘out of your league’. Yes (well depending on you broker anyway) the leverage is much lower but there are most certainly one or two major stock index futures that one can trade as well one or two commodities (I’m of course assuming limited capital here) that one can trade with limited capital i.e. the margin cost on, for example, Amsterdam’s AEX and Japan’s Nikkei 225 is LESS than a microlot of EUR/USD per contract and the same with a commodity like Sugar. The dollar value per point movement is much the same so your stop losses / risk and money management is the same (or easier). The AEX is ideal for gap trading because it has a fixed open and close. In addition (and because the leverage is a lot lower) it makes it that much more difficult to be ‘tempted’ to overtrade your account (and I won’t bore you with the other 101 reasons why I say people should at least give stocks and commodities a ‘bash’).

Then again (and as you say): if ‘what you know’ is working for you then ‘stick with it’. That’s a lesson it took me a LONG time to learn!!! LOL!!! Even now: I LOVE looking at new and different trading systems and methodologies (technical trading systems and methodologies that is) but I’ve at least learned to stick to and only USE the one’s that work for me but, as I said, I’m like a ‘sponge’ when it comes to looking at new systems even if it’s just for interest sake.

If you can find those books on the Internet (which I KNOW you will) then read them ESPECIALLY Carter’s book i.e. even WITHOUT the in depth detail he goes into insofar as his trading systems are concerned he addresses in a fantastic manner the ‘psychology’ of trading in the about the first half of the book (and it’s a THICK book)!!! LOL!!!

Regards,

Dale.

REGARDING THE EUR/USD GAP

Statistics:

Backtesting from 12/30/2002-6/21/2010 in 30-minute intervals, the market has opened higher 51% of the time and lower 49% of the time, both by an average of 17 pips.

If the last bar of Friday closes lower than it opened, then the first bar of the new day closes higher than Friday’s bar 63% of the time.

If the last bar of Friday closes higher than it opened, then the first bar of the new day closes lower than Friday’s bar 47% of the time.

I always go short immediately at the Sydney open (Sunday) because it has a 70% tendency to drop for several hours after the open.

In summary, yes, there is a small gap that you can occasionally take advantage of. However, like akeakamai said, there are much better trading opportunities in the Europe and US open on a daily basis.

Hey ‘TradePlayer’,

Thanks for those statistics (and sorry I’m only replying to you now i.e. I saw this post when you posted it but I’ve been a bit ‘busy’).

Those are indeed interesting statistics. The only ‘critique’ that I have is that it’s not that important as to where the bar on Monday CLOSED in relation to where the bar on Friday closed i.e. it’s just as long as at SOME point (maybe on Monday or in the next few days) the gap was TEMPORARILY closed (if that makes sense). In other words: if there was a gap ‘up’ on Monday did the next few bars move down far enough to close that gap even although they may have ended up closing higher again. See the difference???

But anyway: nice stats and I’m sure the thread starter will appreciate them. As I said: there are (equities) traders that trade nothing OTHER than gaps (but of course they get gaps ‘every other day’ as opposed to once a week).

Just one observation though (and maybe somebody has an answer for this because I don’t understand it myself): I noticed the other day that at some brokers there are ‘gaps’ ON THE HOURLY CHARTS (MetaTrader). How is this possible (and I’m not talking about ‘now and then’ I’m talking ‘fairly regularly’). These cannot be ‘proper’ gaps and I’m just wondering how it’s possible???

Regards,

Dale.

Hello Dale, thank you for your response. I apologize in advance if I didn’t read your questions correctly.

I was looking at the 1-minute chart from the last minute of Friday’s close to the first minute of Monday’s open and 53% of it (since 6/09/2004) has gapped up by an average of 20 pips (in which case it generally falls and seals the gap). When it gaps down (47% of the time) it is by an average of 18 pips, but then it falls for several hours.

In summary, most of the time when it gaps ‘up’ it seals the gap within 30 minutes or so. When it gaps ‘down’ it usually continues it’s drop and takes a day or two to seal the gap back up.

I’m not a fan of the weekend gaps in forex, nor am I sure enough to trade them. I would trade other markets if that’s what I was interested in.

I’m not sure why Metatrader is showing gaps on the hourly chart. That is odd. I liked metatrader until I found out there are now backtesting programs that don’t require any programming at all. It saves a lot of time and “guess-work.”

Hi,

No problem. It was actually ‘fihunts’ that was asking about this i.e. I’m in agreement with you that these are not actually ‘tradeable’ gaps (not in FOREX) but then I’ve never researched it enough really. Put it this way: even IF it was a viable method of trading FOREX I’m know for a fact that I’d never be able to ‘hold myself back’ and only do 52 trades per annum!!! LOL!!! That all being said: it MAY have a place trading pairs where they are not traded ‘around the clock’ as I noted before in this thread i.e. I saw some very nice gaps on some pairs when I doing some research for this thread. The problem though is that pairs of that type are normally ‘exotics’ so you have huge spreads to contend with but I reckon on those typre of pairs it could still be viable. But as you noted: gap trading is method for trading other markets not FOREX (that’s my belief anyway).

Yes: those gaps on the 1 hour charts at one or two brokers either ‘confuse’ or ‘concern’ me i.e. there’s not conceivable reason for them (I mean to say I’ve even checked to see whether there was a news release at the top of the hour for each of these gaps and found nothing). Then again: I’m certainly no MetaTrader ‘fan’ but this is not a MetaTrader issue because it only happens at the two brokers that I looked at (one of which I traded with when I started trading and wouldn’t trust them with YOUR money let alone mine so ‘go figure’)!!! LOL!!!

‘Automated backtesting’: also not for me (call me ‘old fashioned’ i.e. ‘paper trade’ LITERALLY is the way I go when testing something new). But that software does sound interesting though.

Anyway: once again thanks for the input and the stats. Interesting nonetheless.

Regards,

Dale.