How does a gap form?

sometimes there is a big gap from last close price… why is that…:8:

Large gaps are almost always seen when the markets reopen after the Friday close. The primary reasons being that 1) the volume of orders placed at the close on Friday go unfilled when the retail brokers close and 2) the markets never really close. Large financials continue to trade with each other even when you can’t. When your broker has reopened for trading, the price is quite a distance from where it was the last time you saw it.

Smaller gaps can be seen during normal trading hours because there are no orders pending at certain price levels. The next agreed upon price is a few pips way where the next market order triggers that price, resulting in a small gap.

On Fridays, Forex Brokers close their dealing desks and reopen on the Monday mornings. There are however many countries where the financial institutions are open over weekends and there are also many news, political and financial events that will move the market on Saturdays and Sundays. Because of this the Friday price is often considerably different on a Monday morning when Brokers reopen their trading facilities. This is known as the Forex Weekend Gap.

It must also be noted that these gaps are Broker specific. Not all Forex brokers close and open their dealing desks at the same worldwide time.

Based on a some observations on gaps and weekend movements, 80% of price movements close within the same day that they occur. By close I mean the Monday price returns to the Friday price, whereby closing the gap.

The above facts immediately create two Forex trading opportunities that experienced traders have taken advantage of for years.

The first is the weekend straddle which, if you can find an appropriate broker, is the lowest risk trade in Forex trading. You would simply straddle the price at the close of trading on the Friday with pending orders and close any activated deals on the Monday morning. Although this sounds quite simple there are some trading skills involved.

The second opportunity is created by knowing that 80% of gaps close in the same day. This gives you the information you need for your next trade. You would simply enter a deal in the direction of the Friday closing price when the Monday morning price is known and trading commences. This trade is also not as simple as it sounds and care should be taken to use appropriate sized stops. Many traders use the fact that some brokers open earlier than others on a Monday morning to get advanced price movement information to assess the market sentiment for closing the gap.

When the gap is not closed the currency price often runs for hundreds of pips which creates a third online forex trading opportunity.

When a mommy gap, and a daddy gap… ummm… Nevermind.

my friend is an experienced trader , he told me once that if price has closed at friday on the low of that price…I mean if the low for EUR/USD is 1.2720 and the price closed at the exact low price , the market will actually form a gap heading downtrend which will mostly reopen monday at a price no more than 1.2650… did any one noticed that or its just his own theory:15:

I just did a quick visual scan of weekend gaps over the past year. It looks like it his own (incorrect) theory.

how did you do that so fast … i have checked the past 3 years in one week and i didnt find if its right or wrong …

Daily chart. Friday close is right next to Sunday open.

Eezy beezy.

And JL is right.

That theory has gaps in it.

anyway … thanks guys for the double check if i find anything new or i find a clue i will let you guys know…:54: