Hey all after watching the market repeatedly gap from market close to market open. I see a strategy there somewhere.
I’m very sure i’m not the first one to talk about this and thought I would ask my fellow forex traders if they trade the gap and have any tips.
As I see it.
- if there is bullish gap then you short to the first support area
- if there is a bearish gap then you long to the first reisistance area.
I attempted a a bearish gap and missed my open price by 5 pips then went on up to make 50 pips!
Any advice would be appricated.
Darth
What pairs have you looked at?
I’ve been looking into trading these gaps for a few months but not come up with a solid strategy yet. I’m testing a few ideas but remain open minded until I have traded more gaps so please bear this in mind with any of my comments. Back testing will only give you a rough idea as you have to take into account how much your broker varies the spreads. My broker has some pairs such as GBP/AUD and GBP/NZD having 20+ pip spreads when they first open. I back tested and thought I had found a profitable strategy only to find I was getting stopped out too much.
I will be interested to see what ideas and conclusions you come up with.
Have you thought about what the minimum size gaps are you will trade?
What about entries, targets and stop losses?
What time you will look to enter a trade? I live in England and use IG index. They open at 9 which seems to be an hour before most brokers open but I don’t enter trades until about 10:10 when the spreads tighten.
I can only speak about the limited time I have been watching the Sunday gaps, but I have found USD/JPY gaps tend to close quickly but have a large draw down making stop loss placement tricky. AUS/USD gap closes are inconsistent. NZD/USD seems to be the best followed closely by EURO/USD. I also looked at GBP/USD with mixed results. These are the only pairs I have consistently watched so I’m unsure if others perform better. Hope this helps and good luck.
This used to be a consistently profitable strategy when brokers offerred fixed spreads. There used to be opportunities to make 20 to 50 pips a week, regularily. Once they moved to variable spreads, the profits disappeared. Even an 8 pip spread is tough to beat consistently and the 20+ ones are impossible.
Backtesting is probably useless unless you have tick data. So I am not opptimistic that this can be profitable again.
well i’m uk also so with vantagefx it opens 2200. In fairness i’m going to look at the spreads more closely this sunday and choose some pairs witht the lowest spreads. And thank you codemeister for your response. definitely take it into consideration.