EURUSD gapped down pips when markets reopened on Monday. I have observed that these weekend gaps usually reverse completely by the middle of the trading week.

Due to thin liquidity, markets typically overreact to the weekend news when trading reopens on Monday. With increasing liquidity in the ensuing London and New York sessions, this imbalance tends to correct itself. This will help it perform more consistently across various markets, or across different volatility regimes in the same market.

The gap reversal, if successful, should have been completed by then. That went much better than expected. The only bummer is the miserable sample of 48 trades. To bump up the sample sizes, you can backtest the strategy on other markets too. It does appear that forex weekend gaps have a tendency to reverse by the end of the trading week. This statistical edge can easily be exploited, as long as you have strict risk management rules to protect your downside.

You can instead include it as part of a diversified portfolio. As usual, you can download the weekend gap strategy in the Free Strategies section. Access day FREE trial here! Get up to USD discount! Try the FREE version here! The MACD is a simple and effective momentum indicator. The Laguerre RSI attempts to improve the responsiveness of the regular RSI, whilst keeping whipsaw trades to a minimum.

Here I explain its inner workings and show you how to build a trend following strategy around it. Have you heard of fixed ratio money management? How does it compare to the popular fixed fractional approach? The ability to efficiently trade a diversified portfolio of strategies is one of the biggest advantages of algorithmic trading. The QQE is a mysterious indicator that sometimes pops up in trading forums.

Does it deserve a place alongside the more traditional momentum indicators like the RSI and CCI? Bollinger Bands are great at detecting overbought and oversold conditions. Trailing stop losses are a popular feature in many trend following systems. The initial gap is created in Sydney and Wellington. Contrary to most other sessions in this zone, this one is very active and consists of significant and healthy moves, especially if there is a gap. Digest and react within 4 hours — While this session is relatively active, the more serious action begins only when Tokyo opens, at on Monday.

In many cases, these gaps tend to close before traders in Tokyo join in. Gap closed scenario : So, if according to your analysis technical, fundamental, both the gap is unjustified, these four hours are a good time to act in the direction of a close in the gap. Gap trade ends : When traders in Europe join in, liquidity is already much higher, and more news and analysis float around. The Sunday gap should end by this time.

If so, how do you do it? Further reading: 5 Most Predictable Currency Pairs Yohay Elam. Yohay Elam Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. Yohay's Google Profile View All Post By Yohay Elam. Read Next. Time running out for Greece FxPro - Forex Broker 11 years. Regulated Forex Brokers All Brokers. Sponsored Brokers. So by selling on Sunday as the market opened there was 20 pips available… which was fulfilled over the next 4 hours.

This is a valid strategy — just look for gaps… however there becomes a fairly significant issue and that is: What if the market goes the other way? Take a look at this example:. In the pictures Gap forex system in action. Either way not a great trade at all in the case! We require knowledge of candlesticks to help us. What we do is actually really simple; we look for a gap on a currency pair and then, instead of just jumping in, we wait patiently until we get a solid candlestick pattern.

A candlestick pattern does three things for us:.

Gaps in trading are a common phenomenon and very commonly occurring in stocks. A gap is formed when the opening price for the day is higher or lower than the closing price of the previous day. A gap is nothing but an empty space between the closing price of the previous candle and the opening price of the next candle. The chart below is an example of a Gap formed on NZDUSD. Gaps are formed when there is an extreme sentiment in the market and when bulls or bears overwhelm the other.

Gaps in the forex markets can often be seen during important news events , or on the first price candles of the week when the market is closed during the weekend. Gaps can be easily distinguishable on Candlestick charts or OHLC bar charts. Read more about Forex Trading the News. A down gap is formed with the opening price is lower than the closing price of the previous day.

An up gap is formed with the opening price is higher than the closing price of the previous day. The chart below is an example of an up gap and a down gap. In other words, if a Gap is formed, traders believe that price always comes back to fill that Gap. This philosophy needs to be taken with a pinch of salt. For example, when a Gap is formed, price can almost immediately or within the span of a few hours can reverse and fill the gap. And at times it can take weeks or months for a Gap to be filled.

The above chart shows how the Gap that was formed on 12 th of July , was filled some weeks later around 23 rd July. The next chart below shows another example of a Gap that was filled within a few days. Therefore, while it is true that gaps are meant to be filled, there is no saying in how long it could take for the gap to be filled.

Break away Gap : A break away gap is typically formed at the start of an uptrend or when price is just coming out of a consolidation phase. It is known as a breakaway gap because price tends to break out from its previous consolidation to establish a new market move. The chart below shows an example of a breakaway gap that was formed right after a prolonged period of consolidation. Runaway or Continuation Gap : This type of gap is formed within the prevailing trend and is usually said to occur mid way of a trend.

When a runaway gap is identified, traders know that the previous trend will continue and trade in the direction of the trend. The chart below shows a continuation gap that was formed in the middle of the uptrend. Common Gap : This is one of the least important gaps and is formed, as the name suggests, commonly. Common gaps can be formed at any time of the trading session. Common gaps are more likely to be filled within a few price bars and can therefore be used for very short term intra-day trading.

The chart below shows a common gap that was formed, notice how quickly this gap was filled. Exhaustion Gap : Exhaustion gaps are formed towards the end of the previous trend and indicate the last final push in momentum before prices start to fizzle out.

Exhaustion gaps are better found with stocks as it is commonly identified with a gap being formed with an unusual surge in volume. Exhaustion gaps occur within the direction of the previous trend. Example, in an uptrend, exhaustion gaps are identified with an up gap or down gap if the previous trend was a down trend. The chart below shows an exhaustion gap being formed after a brief rally.

Notice how after the gap was formed, price quickly changed direction and continued to fall. Gap Trading — Conclusion. Gaps , in the forex market are a common phenomenon and depending on the type of Gap that was identified, long or short positions can be taken. If you are not sure about trading with Gaps, gaps can alternatively be used as a confirmation signal. For example, when you notice a runaway gap being formed, you can take a position based on the prevailing trend, knowing very well that run away gaps are formed in the middle of a trend.

Gaps can therefore be a helpful way to understand the market sentiment and trade accordingly. Your email address will not be published. Recommended by ProfitF :. Forex Broker Binary Broker ForexVPS FX-Signals BO-signals. PROFIT F About Us Write For Us Affiliate Program Advertising Contacts. Trading Forex, Binary Options - high level of risk. Please remember these are volatile instruments and there is a high risk of losing your initial investment on each individual transaction.

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Why are Gaps formed? Read more about Forex Trading the News Gaps are identified individually as a Down Gap and an Up Gap. Types of Gaps Gaps can be classified into the following four types: Break away Gap Run away or Continuation Gap Common Gap Exhaustion Gap Break away Gap : A break away gap is typically formed at the start of an uptrend or when price is just coming out of a consolidation phase.

Gap Trading — Conclusion Gaps , in the forex market are a common phenomenon and depending on the type of Gap that was identified, long or short positions can be taken. Add your review Cancel reply Your email address will not be published. Recommended by ProfitF : Forex Broker Binary Broker ForexVPS FX-Signals BO-signals.

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Submit Comment. Or another way is to close the trade as soon as the gap gets filled. Weekend gaps are caused by unforeseen geopolitical events. Read Next. Does the occasional weekend gap contain a statistical edge?

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