Did you see the gap of this week in EUR/USD? 100 pips gap!
Let’s start with a bit of annoying theory first (you can skip this part as this material is not examinable). Forex gaps occur when on any currency pairs the opening price at the start of the week is different from the closing price of the previous week. This is due mostly because the majority of our retail brokers are closed during weekends and they do not update their charts till the opening of a new week. As you can imagine when brokers are closed the world still goes on and so prices on currencies change. A gap simply shows the not updated weekend candles on the chart. Gaps can present themselves also during the week when lack of liquidity, volume or a sudden news released provoke the price to jump. In my experience with Forex the weekend gaps are more frequents and visible than the latter.
OK what happens next? Well most of the time gaps are filled! I would even say either on the same day or on the same week - please note that I said most of the time, not always as everything can happen in forex so please don’t bet your grandma’s house in one go, just do it little by little.
I put you here below a link where I wrote an article about Gaps. If you wanna check it out please do it. This article is part of a contest and if I get your views I get points so for me it would be really appreciate it. I hope you don’t find it as a span as at the end of the day I put a lot of effort on it.
it is a high probability that gaps fill. the problem is setting a reasonable stop to trade a gap. I trade gaps almost every week often the rr is not very good. There is 1 broker I know that has a price feed open on the weekend. You can see and enter the gaps before “market open” if you dont mind some high spreads when you place the trade.
Yeah GAP do fill! You saw last night (for me that I’m in Europe) after the Gap was filled together with FED
comments the EUR/USD pair went back to its trend (at the moment bearish). Now I think 1.34 is the new target just to start. Fundamentals yesterday proved again that are just an excuse for movements of this kind.
you did not even tell us about if you buy or sell a gap from your picture example pls work on then again for new forex traders may not understand all you are saying. so paste a picture,telling when to buy or sell a gap.
I’ll try to explain myself as best as I can…
When I see Gaps (on Monday morning - European time) I take note of it and check how many pips is the Gap large. I then check the price action of the pair (I personally trade EUR/USD) and see how willing it is to go towards the trend direction (this week bearish trend). For example, the price action of the first three days of this week was telling me that no matter what before going to its bearish trend it must have closed the gap. Having in mind that I was buying at lows on Monday, Tuesday and Wednesday. Last night after the gap filled I put myself superduper bearish (my target was 1.34 that I got it today :-).
Lucky? Maybe! The secret here is to have in mind that gaps are a powerful thing in forex and they are loved and used by a lot of traders. In relation to how many pips should your stop loss be it’s difficult to answer as everybody has a different style of trading. I personally look at price action and decide my stop loss in base of it and in base where I start my trading (usually trying to buy on pullbacks and sell on spikes) I wouldn’t be too worry to trading style as this definitively will come after hours and hours of trading and a good use of money management For your reference I put the EUR/USD 4H chart as it is today (22nd September 2011)
Small gap on GU and EU from the weekend but so far no sign of filling. Historical data proves that gaps do not always fill so this one will be interesting …
Trading gaps used to be profitable until my broker (FXDD) widened the spreads a few months ago. They used to be a fixed spread outfit, but they are now variable and are wide especially at the weekly market open. Its hard to get a reasonable R:R with 8 to 18 pip spreads.
I have a problem with gaps, for the past 5weeks I have been trading gaps successfully by placing one order for sell and one for buy in minutes just before an indice f40 closes in my demo, now when I go to my live account it doesn’t work the same way! And I am using a true ecn broker, they push my orders and they activate at the opening of the price not where I placed my orders. Please help me understand
For your reference I put the EUR/USD 4H chart as it is today (22nd September 2011)
