The Gap is mystery, it’s as difficult as to understanding woman. To all female in babypips, don’t feel offended. I have no meaning at all. I respect women, as you’re wonderful human being. But, as an introvert person, knowing a girl was a very difficult thing.
The Gap happens when market’s equilibrium has changed. All are about fundamental. For example:
XAUUSD is a commodity pair and also hedging instrument. When economic is good, people will dump gold, try to get profit from business. This will bring down XAUUSD.
For example US’s economic is under a prime condition, there will be strengthen USD. At the same time, let say China is also having good economic, liquidity is needed, China reduces their COT for gold, then XAU will also weakening.
This will let a decisive GAP. Big countries don’t have eye on XAU, we will see the decline on XAU, step by step. Since everything is done systematically, the decline will be smooth, we will have decisive and smooth gap. Price on XAUUSD will show a gap, but the price will come up again, give kiss and hug to previous base before saying good bye. We can sell in within the imbalance to earn good profit.
Another situation, for example US market is having threat or going to recession. But the fed says, everything under control. Let says it is announced at Saturday night, market close, we are trapped. On Monday, market will move crazily, adapting the situation. Let say we are trading XAUUSD, we probably will see everybody is hunting XAU for protecting their asset, XAUUSD will skyrocketing, at a moment, there is news FOMC. As everyone is expecting the speech will be around recession, then nothing more important as market has appreciated the event. However, out of prediction, FOMC is telling there will be liquidation for big financial institution, every one will shock, market will again jump to new base, adapting to the latest information. Under this condition, we can only zoom out, just like when our girlfriend is having mood swing, keep a distance, but tell her, we are round when she need us
By zooming out, you can see the real gap and know how do the trick.
The above story is an example of how a rough decisive gap will happens, in an extreme way.
I feel like a grandpa … telling story