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Forex Gap Strategy


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Forex Gap Strategy — is an interesting trading system that utilizes one of the most disturbing phenomena of the Forex market — a weekly gap between the last Friday's close price and the current Monday's open price. The gap itself takes its origin in the fact that the interbank currency market continues to react on the fundamental news during the weekend, opening on Monday at the level with the most liquidity. The offered strategy is based on the assumption that the gap is a result of speculations and the excess volatility, thus a position in the opposite direction should probably become profitable after a few days.

 

How to Trade?

Select a currency pair with a relatively high level of volatility. I recommend GBP/JPY as it showed the best results during my tests. But other JPY-based pairs should work too. By the way, it's a good strategy to use on all major currency pairs at the same time.

When a new week starts look if there is a gap. A gap should be at least 5 times the average spread for the pair. Otherwise it can't be considered a real signal.

If Monday's (or late Sunday's if you trade from North or South America) open is below the Friday's (or early Saturday if you trade from Oceania or Eastern Asia) close the gap is negative and you should open a Long position.

If Monday's open is above the Friday's close the gap is positive and you should open a Short position.

Don't set a stop-loss or a take-profit level (it's a rare occasion but stop-loss isn't recommended in this strategy).

Right before the end of the weekly trading session (e.g., 5 minutes before the end) you need to close the position.

forex-gap-strategy-chart.png

You can see GBP/JPY pair's last 7 weeks (as of May 24, 2010) and all of them have gaps. 6 out of 7 gaps give correct signals that result in a lot of profit. The last gap gives a wrong signal and yields a medium loss. The average spread for GBP/JPY was 3 pips during the example period and all gaps were much wider than 15 pips, making them all qualifying signals. The net total profit was 1,612 pips in 7 weeks — not that bad.

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It is a very good way of trading with gap if we have got proper experience but at the same time if we don’t have any mastery over it than we must avoid doing as it’s very risky. Mostly expert use for trading and they are fairly successful at it. I am trying this method with OctaFX broker since they allow all technique which includes scalping, hedging, news trading and even EA so that makes me feel comfortable and satisfied.

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It is a very good way of trading with gap if we have got proper experience but at the same time if we don’t have any mastery over it than we must avoid doing as it’s very risky. Mostly expert use for trading and they are fairly successful at it. I am trying this method with OctaFX broker since they allow all technique which includes scalping, hedging, news trading and even EA so that makes me feel comfortable and satisfied.

Gap is harder to know, first you must know when is the right time for gap to happen. It is not happening all the time. Somtimes those gap cannot be happen or simply out of your prediction's range. For me gap is too risky but still profitable if you can predict it right, with 10-30 pips profit.

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Gap is harder to know, first you must know when is the right time for gap to happen. It is not happening all the time. Somtimes those gap cannot be happen or simply out of your prediction's range. For me gap is too risky but still profitable if you can predict it right, with 10-30 pips profit.

 

Gap actually is profitable traders know how to trade it. Offers good risk reward ratio. One person I know traded gap  and saw decent profit. I am out of touch with that person now. Don't know how he is doing.

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If that is the positive gap then it is a good thing, most people will love it including especially when the gap from the closing to the opening is around hundred pips :D . But it is hard because we don't know about the gap will happen or not, it is full with uncertainty which makes us don't know what to do.

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My problem with gap trading at the moment is how do we know? Is that really accurate? The profit surely decent and some people able to reap the profit more. Gap appear usually at tokyo session i mean the opening, but it is hard to realized what kind of gap happened, is that bullish gap or bearish gap.

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If that is the positive gap then it is a good thing, most people will love it including especially when the gap from the closing to the opening is around hundred pips :D . But it is hard because we don't know about the gap will happen or not, it is full with uncertainty which makes us don't know what to do.

 

Predicting whether that big move will happen or not is a difficult thing. If it does not happen then the loss will be small in gap trading strategy and if the market moves then good chance of making some decent pips.

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It is surely difficult and not all traders can do that , in fact some people will think twice but the gap profit is huge thing and usually there are bigger tendency that the price after than will follow the gap trend, if the gap is bullish, it will be bullish and vice versa. So far only few use this one compared to the other traditional strategies.

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