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TRADING GAP’S

What are Gaps?

Gaps are areas on a chart where the price of a financial instrument that moves sharply up or down, with little or no trading in between.

As a result, the asset’s chart shows a gap in the normal
price pattern. This is an opportunity as a trader can interpret and exploit
these gaps for profit

A gap is a change in price levels between the previous close and the open. Most common on the stock market over two consecutive days

example:  Apple closes at 152.31 and the following open price is 150.99

Apple Gaps Down

The Gap Gets Filled 

Gaps can be caused by many factors such as buying or selling pressure, supply and demand or economic announcements such as a Brexit which frequently occurrence in all financial markets. However, they are More commonly seen in the FX market on a Monday Morning since it is highly liquid and trades 24 hours a day.

Know your FX Market Sessions!

The FX market trades 24/5 and there are three main session to be aware of: Asia Pacific (APAC), London and the US. While the US market is the biggest in the world the London trading session is actually the busiest.

You can check all market and forex opens and active sessions using the session map on MT4

Most often, gaps occur on the open of global markets and exchanges. Gaps result from fundamental or a newsworthy event that occurs after the market as closed, and the value of the effect can’t be realised until the market re opens that’s when the effect will be priced in resulting in an imbalance in supply and demand as the market opens causing a gap.

Currency day traders exploit these gaps to take quick profits from the price action corrections that take place as buyers and sellers struggle to find a new equilibrium price.

Gaps that form in the intraday market are usually a result of major economic announcements, but gaps can be formed in many ways and throughout 2018 Donald Trump’s twitter account caused market moves much greater than macro data releases from the FED (US Federal Reserve Bank)

The Monday Morning Gap is a distinct empty space between Friday’s close and Monday’s open as market prices react to headlines and events that occur over the weekend, when the market is closed. Characteristically gaps will get “filled”. The MFX Indicator has been designed to quantify this opportunity for active traders to get a jump on the trading week.

Gaps can be caused by many factors such as buying or selling pressure, supply and demand or economic announcements such as a Brexit which frequently occurrence in all financial markets. However, they are More commonly seen in the FX market on a Monday Morning since it is highly liquid and trades 24 hours a day.

A filled gap is one in which the price completely retraces and fills the gap within a few bars following the gap.
These gaps typically happen in either direction during sideways range-bound trading markets or in the direction opposite the trend in trending markets

Many traders trade the US Sunday afternoon Forex open which is Monday morning    gap trading in Australia set up their decisions about when to enter a trade.

A general rule of thumb that many traders use for trading the Forex market open:

Calculate the distance between the close and open price.

Trade back to Fridays close price = TAKE PROFIT IS FRIDAYS CLOSE PRICE

Look for Gaps greater than 10 PIPS + the spread

You can apply two stop loss options:

(a) apply no stop loss at all INITIALLY but as price moves in favor by say 50 pips, place stop loss above high or low of the Monday Candlestick when it closes 

(b) Place stop loss above/below nearest swing high/swing low the you can find in 1 hour or 4 hour timeframe.