The Gap Close strategy uses two profit targets and a stop loss to protect the position. The first profit target corresponds to half the distance of the gap. The second profit target corresponds to the full distance of the gap. Traders tend to open positions which can be split into two, resulting in an equal position size for each profit target. Other split ratios than 50/50 are possible. These can be set, as usual, in the Designer dialog.
The stop loss is a fixed stop. This stop is in essence a safety net as it is placed relatively far from the entry price (default ticks).
What to do when the target(s) are not reached and the stop is not triggered? Manually close the position on Wednesday.
The example shows a short sell signal on the EUR/NZD. Half of the position is closed when the first target (half the gap, green line) is reached. The other half of the position is closed when the market closes the gap. The red line indicates the stop order.
Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals. In simple terms, gap trading is a disciplined approach to buy and sell assets. You can benefit from volatile markets in asset prices or gaps and turn these gaps into trading opportunities. Let's take a deep dive into what gaps are and how you can make the most of gap trading:
A gap refers to the difference between the currency pair opening price and the previous day’s closing price. Any sharp upward or downward movement in the currency pair price can be termed as a gap. In gap trading, the traders find currency pairs that open at a higher price or an extremely low price than its previous day’s closing price, monitor its movement, and make a trade. Gaps can be identified as candlesticks on the Forex chart pattern, and sharp price movements are notably visible with low liquidity in the trading volume. Here’s how you can identify gaps:
Breakaway gaps identify the strongest support and resistance price levels. They generally mark a trend reversal while moving out of a current trend.
Common gaps refer to a non-linear drop or jump from one currency pair price to another. As the name suggests, these gaps are the most common gaps to witness.
Exhaustion gaps occur when a steep decline in a currency pair’s price happens after a rapid increase. This gap signals traders that there is now a fall in the demand for the currency pair.
Runaway gaps in the Forex market occur in the middle of an existing trend. It occurs in the trend’s direction and is a gap that exceeds 5% of the currency pair’s price.
The full gapping trading strategy occurs whenever a currency pair opens at a price that is above and beyond the previous day’s closing price. Full gaps indicate a strong market sentiment shift and send entry and exit signals to the traders.
The partial gapping trading strategy occurs whenever the currency pair’s opening price moves beyond or below the last day’s closing price. But the opening price remains within the last day’s pricing range. The partial gap trading strategy allows traders to place trailing stop orders of around 6%.
The end of day gap trading strategy involves the traders scanning and reviewing the currency pairs at the end of the trading day to analyse which ones have the best potential. Since the Forex market functions 24 hours a day, from Sunday to Friday, the end of the day for Forex traders is P.M. EST on Fridays. The volatility during this hour sends a strong indication to traders about the continued movement in the market along the gap’s direction.
In a modified gap trading strategy, a trader places positions in the middle of a market trend. The only requirement to trade the modified gap trading strategy is that the currency pair must be trading twice (at least) the average trading volume since the last five trading days.
Trading the currency pair price’s gap enables you to identify potentially profitable positions. Blueberry Markets is a trading platform that delivers all the charts and informational material about different Forex trading strategies that you can apply to maximise your profits and minimise your losses. Sign up for a live trading account or try a risk-free demo account.
Forex trading requires discipline, focus, and a strong understanding of market trends.
The forex market can be operated 24/7 Monday to Friday.
Each trader in the forex market defines their position size before moving forward with a trade.
The forex market is the most liquid and largest market in the world. However, like any other financial market, the forex market can also be risky during times of high volatility.
Forex hedging or currency hedging allows you to open multiple trade positions to offset any possible currency risk associated with your current position
PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.
Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement.
Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.
MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?
The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $ trillion in , it is the largest financial market in the world.
Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.
Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.
A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you.
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.
The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $ trillion and worth over $ quadrillion as of , Forex is a decentralised global market for trading currencies.
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.
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If youre a price action trader, you might be familiar with a concept that has been making the rounds lately called the Fair Value Gap. In this article, were going to talk through the basics of what a Fair Value Gap is, show some examples of how to think about using it in your trading, as well as how to scan for it on the TrendSpider platform. Lets dig in.
Before we get into how to utilize the Fair Value Gap indicator in your trading, lets first talk through what a Fair Value Gap is.
Fair Value Gaps are most commonly used amongst price action traders and are defined as instances in which there are inefficiencies, or imbalances, in the market. These imbalances simply suggest that buying and selling are not equal.
Fair Value Gaps are created within a three-candle sequence and are commonly visualized on the chart as a large candle whose neighboring candles upper and lower wicks do not fully overlap the large candle.
The reason why a trader might be interested in where these Fair Value Gaps occur is simply that the imbalance created by them can become a magnet for price in the future.
Like any other indicator on the TrendSpider platform, the Fair Value Gap indicator can be added to your charts by selecting it within your indicators button. Once added, it will highlight all Fair Value Gaps on your chart with blue horizontal shaded areas, as is pictured in the image below.
In the example pictured below, we see a high made that is then followed by a strong sell-off. The first large red candle after the high is where the Fair Value Gap is created. Price trades down, begins to make a bottom and then climbs back up to test the previous high that was made. As soon as the fair value gap is filled, price sells off again. This would be an example of price filling to the upside in order to clear out the imbalance made from the Fair Value Gap. Once the gap is filled, there is no longer an imbalance and price can continue in the direction it was headed previously and a secondary down move occurs.
In the example pictured below, we see the opposite of the above example. A Fair Value Gap is created due to strong buying pressure. Price trades up, begins to top out and then pulls back into the Fair Value Gap. This clears out the imbalance that was made from the move up, and almost immediately after the gap is filled, price is able to continue quite higher.
Though it is not possible at this time to use the Fair Value Gap indicator in the scanner, it is still possible to scan for Fair Value Gaps using price action criteria. As we defined earlier in the blog, Fair Value Gaps are formed via a three-candle sequence in which a large candles neighboring candles upper and lower wicks do not fully overlap the large candle. Add these customs scans to identify Fair Value Gaps as they form!
In the instance of a Fair Value Gap being created due to large buying pressure, we would use the following criteria:
In the instance of a Fair Value Gap being created due to large selling pressure, we would use the following criteria:
The below image shows these parameters scripted into the TrendSpider scanner.
If youre a current TrendSpider user, youre welcome to subscribe to this shared Fair Value Gap Scanner. Do keep in mind that this scanner looks for Fair Value Gaps that were created both to the upside and the downside. If youd like specific scanners for each direction, save the condition groups and create your own! Additionally, feel free to create your own copy and adjust the parameters as you see fit.
So there you have it, folks. Some basic ways to be thinking about how to utilize The Fair Value Gap in your technical analysis and within the TrendSpider platform. We hope you found this helpful and wed love to hear how youre using this indicator! Feel free to reach out to us in chat with any questions or thoughts that you might have.
A gap is nothing but an empty space formed between two successive candles (or bars) representing a change in the exchange rate of a currency pair. Generally, when a candle gets completed according to the time frame used by a Forex trader, the next candle will open such that there will be an overlap of the closing price of the completed candle and the opening price of the new candle. However, in a gap formation, there will be a huge gap between the closing price of the completed candle and the opening price of the new candle. The new candle can form above or below the completed candle as shown in the figures below.
An example of a positive Forex gap:
An example of a negative Forex gap:
A gap formation occurs when the sentiment turns extremely bullish or bearish towards a currency (or any other asset). Gaps can occur in any timeframe and can happen at any time. However, Forex markets being highly liquid, gaps are formed usually at the beginning of a new trading week.
When there is a sudden change in the sentiment, buyers or sellers would make a frantic attempt to enter or exit a position. That would create a price gap on the upside or the downside. If the sentiment has turned bullish all of a sudden, then Forex traders having a short position in a currency would try to outbid each other, thereby creating a huge price gap on the upside.
Likewise, if the sentiment has turned bearish suddenly, then Forex traders having a long position would compete to exit at the earliest, thereby creating a huge price gap on the downside. Unexpected economic or political news causes a change in the sentiment required to produce big currency rate gaps.
For example, back in April , when Theresa May, the Prime Minister of the United Kingdom, announced snap election, a majority of market participants anticipated a huge victory for the Conservatives. Surprisingly, Theresa May and her party lost the majority, and the election resulted in a hung parliament. That dampened the sentiment towards the Great Britain pound, thereby leading to a negative gap opening in the GBP pairs.
It is not uncommon to see the price reverse at some point in time and close a gap created previously. However, there is no guarantee that it would happen. Even in the case of a price reversal, there is no definite time frame for the gap to be filled. Depending on the strength of the underlying sentiment, a gap may be filled within a day, week, after several months, or never at all.
Depending on the nature of formation, gaps can be grouped into four categories.
A breakaway gap can be seen at the beginning of a big price movement and at the end of a consolidation phase of a currency pair. Since such gaps are formed when a currency pair breaks out of a non-trending pattern to a trending pattern, it is referred to as a breakaway gap.
The GBP/USD pair formed a breakaway gap on June 8, , following the exit polls' prediction of hung parliament in the UK.
It is formed around the middle of an uptrend or downtrend of a currency pair. Since the trend remains unchanged after the formation of the gap, it is one of the most reliable patterns to trade with. The image below shows a continuation gap formed by the EUR/USD pair on April 23,
An exhaustion gap is usually seen in the final leg of a downtrend or an uptrend. The pattern is confirmed on the basis of low volumes. The EUR/RUB chart below shows an exhaustion gap formed few days before the second round of the French election, conducted on May 8,
A common gap is formed when an overwhelmingly positive or negative news is announced. For example, retail sales, unemployment change, NFP, and GDP growth data can result in the formation of common gaps. When IHS Markit reported a lower than anticipated flash manufacturing PMI (US) on March 24, , the USD/CAD pair made a common gap pattern as shown in the chart screenshot below. Earlier that day, Statistics Canada had reported better than expected core CPI data.
It would be an interesting opportunity to create trading strategies once you become well experienced in identifying price gaps and their nature as they form on the chart.
Alternatively, you can try using our Forex gap strategy developed for the weekly gaps in JPY-based currency pairs.
If you want to get news of the most recent updates to our guides or anything else related to Forex trading, you can subscribe to our monthly newsletter.
As the forex market operates continuously throughout the week, the closure during the weekend can result in a discrepancy between the closing price on Friday and the opening price on Sunday. Below we delve into the dynamics of the weekend gap trading strategy in forex, a tactic that many traders utilize to harness profit from this particular market characteristic.
Forex trading is known for its 24/5 activity, following the business hours of the world's major financial centers. At the end of the New York trading session on Friday, the forex market draws to a close and only reopens with the Sydney session on Monday. During this time, currency prices are susceptible to change due to many factors, such as emerging geopolitical events, newly-released economic data, or other significant news that can move the markets. When the trading resumes, if the opening price differs markedly from Friday's closing price, a "gap" is said to have occurred.
The weekend gap trading strategy has gained traction among forex traders eager to capitalize on these price discrepancies. The primary premise of this strategy is the market's propensity to attempt to fill the gap, meaning that the price will endeavor to return to the Friday closing point. Therefore, traders strive to initiate positions as soon as the market opens on Sunday, banking on the price reversal to close the gap.
To proficiently trade weekend gaps, there are several vital steps to consider:
Identify the Gap
The first task at the market opening on Sunday is to ascertain whether a substantial gap has formed between the closing price on Friday and the opening price on Sunday.
Initiate the Trade
If a gap exists, the next step is to place a trade in the direction that anticipates closing the gap. For instance, if the opening price on Sunday is higher than the closing price on Friday (an upward gap), a short position would be the appropriate move, predicting a decline in the price to close the gap.
Timing is vital, as entering too early will likely result in a loss. An opening gap will initially result in some traders who held positions on Friday needing to exit with a loss. To profitably trade this pattern, wait until the stop loss orders are finished to enter a position. If the market suddenly moves in one direction and then quickly starts to move in the reverse, it could be a sign that the stop loss orders are finished and a good entry point.
Determine Stop Loss and Take Profit Points
A simple risk management strategy is to set your stop loss below the opening of the Monday price and a target at Friday's close. More advanced traders will use trailing stops to reduce risk and look for opportunities to extend profits should the market return to Friday's close.
Supervise the Trade
After placing the trade, it's vital to monitor it closely. Depending on the market's volatility, gaps can close quickly or gradually. Sometimes, the gap may not close during the upcoming trading week, and this can lead to significant losses if you do not exercise caution, as many other traders will be stuck with a similar losing position.
While weekend gap trading can present lucrative opportunities, it is crucial to be mindful of the associated risks:
Non-Closing Gaps
Not all gaps close. Some gaps linger open for an extended period, leading to drawn-out periods of negative return. Do not assume all gaps will close. Weekend news events can be important and start new price trends which can continue for a long time.
Slippage
The forex market can exhibit considerable volatility during the opening on Monday. Slippage can occur, meaning your orders may be executed at a different level than you've set. Be patient with your entry point and avoid chasing the market.
Risk of Wide Gaps
Over the weekend, major events or news releases can trigger unusually wide gaps, which might exceed your risk tolerance. Wait until the market calms down to reduce your risk.
Incorporating effective risk management techniques is a crucial aspect of weekend gap trading. Here are some ways to safeguard your trading activities:
Risk Per Trade
Each trade should only risk a small fraction of your trading capital, typically no more than %.
Correlation Risk
If you're trading gaps on several currency pairs that are closely correlated, you should be aware of the correlation risk.
News Awareness
Stay updated about significant news events over the weekend that could catalyze extensive gaps. News analysis can be complicated as analysts will have varying views on the importance of an event but never underestimate the power of market news on Forex prices.
It is essential to test any new strategy before implementation. Begin by backtesting the gap trading strategy against historical data, and then practice it in a demo account to observe how it performs under real-time market conditions. This will allow you to assess its effectiveness and adjust based on your observations.
A less discussed but equally important aspect of gap trading is trader psychology. It requires patience to wait for the market to open and see if a gap forms. Emotional control is crucial once a trade is initiated, as the price may move against you before the gap starts to close. Sticking to your predetermined stop loss and taking profit without succumbing to fear or greed can often be the difference between success and failure in gap trading.
Conclusion
Weekend gap trading is a potentially very profitable strategy that capitalizes on the pause in the forex market. While it can offer substantial profits, it's crucial to understand the associated risks and employ effective risk management strategies.
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The Chaikin Money Flow indicator provides future market direction by analysing the strength of the market trend and underlying buying or selling pressures.
Momentum trading leverages market volatility to the trader’s advantage by identifying the strength of the market’s current trend.
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
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Momentum indicators measure how strong the price change is in the currency pairs.
Gator Oscillator helps in identifying a trending or consolidating market.
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
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The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
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Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
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A stock gap is an area discontinuity in a security's chart where its price either rises or falls from the previous day’s close with no trading occurring in between. Gaps are common when news causes market fundamentals to change during hours when markets are typically closed, for instance, an earnings call after-hours.
Gaps typically occur when a piece of news or an event causes a flood of buyers or sellers into the security. It results in the price opening significantly higher or lower than the previous day’s closing price. Depending on the kind of gap, it could indicate either the start of a new trend or a reversal of a previous trend.
Gapping occurs when the price of a security or asset opens well above or below the previous day’s close with no trading activity in between. Partial gapping occurs when the opening price is higher or lower than the previous day’s close but within the previous day’s price range. Full gapping occurs when the opening is outside of the previous day’s range. Gapping, especially a full gap, shows a strong shift in sentiment that occurred overnight.
Some traders make it a strategy to profit from playing the gap when such a situation occurs.
There are limitations despite gaps being easy to spot. The glaring flaw is one's own ability to identify the different types of gaps that occur. If a gap is misinterpreted, it could be a disastrous mistake causing one to miss an opportunity to either buy or sell a security, which could weigh heavily on one's profits and losses.
There are some fundamental differences between the different types of gaps: common gaps, breakaway gaps, runaway gaps, and exhaustion gaps.
Each type of gap has certain consequences for traders. For example, reversal or breakaway gaps are typically accompanied by a sharp rise in trading volume, while common and runaway gaps are not. Additionally, most gaps occur due to news, or an event such as earnings or an analyst's upgrade/downgrade.
Common gaps happen more regularly and do not always need a reason to occur. Also, common gaps tend to get filled, whereas other gaps may signal a reversal or continuation of a trend.
In the example below of eunic-brussels.eu Inc. (AMZN), a small stock gap occurred between Oct. 26, , and Oct. 27, , when the price jumped from $ to $ This was a reversal of a downward trend which saw the stock's price continue to climb.
In the next example, of Alphabet Inc. (GOOGL), a gap can be seen from Oct. 24, , to Oct. 25, , when the price fell from $ to $ after weeks of a general price increase. The gap drop did not result in a continued downward trend, instead, the price continued to increase to its pre-gap level, filling the gap.
A stock gap is a large jump in a stock's price after the market closes, usually due to some news. When a gap has been filled, this means the stock's price has returned to its "normal" price; the pre-gap price. This happens quite often as the price settles after irrational buying and trading has stopped after the news.
Price gap risk is the risk that a security's price will fall or increase dramatically from a market close to a market open, without any trading in between. Traders should plan for price gap risk, such as by closing out orders at the end of the day or putting in stop-loss orders.
The amount of times stocks gap really depends on the time frame that a trader is viewing and making trades. The shorter the time frame, the more frequent the gaps. So a daily chart would have more gaps than a monthly chart.
Price movements of an asset indicate to traders when it might be a time to buy, sell, or ignore what is happening in the market. Gaps, such as stock gaps, are large jumps in a security's price during non-trading hours due to external factors, such as news. When evaluating the gap, traders and investors need to determine the cause before taking any action.
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