The Forex Gap Trade

[£10kLoser]

Gap trading is quite popular for stocks and other products that close at the end of day and can 'gap' open the next morning.

Of course, Forex is a 24 hour market but it does close for the weekend and open again Sunday at 11:00pm UK time (00:00 GMT) - giving an opportunity for a gap 4 or 5 times a month.

Statistically, for at least the EUR/USD this presents us with an 80% chance of making a profit. Contrary to expectations, if the EUR/USD gaps open up by at least 15 pips, it is very likely to end up down (if not for the day then it will go down considerably). If it gaps open down, it will likely give us a buy opportunity.

I trade this with a 60 pip stop and a 75 pip limit for a gap opening between 15 and 35 pips and a 100 stop with a 125 pip limit if the gap is larger.

i open my trade in the opposite direction on the open of the second hourly candle (unless it is still obviously going in the gap direction strongly, in which case we wait for the move to reverse a little).

Last night, it gapped open a huge 52 points up and turned about 200 points down this morning from the open of the second hourly candle. This gave me an easy 125 pips and I was never more than 60 pips down. This may seem a lot but with a statistical 80% success rate we can afford a large stop.

There are maybe 2 opportunities a month which translates into about 120 pips a month clear profit from this one simple strategy.

 

[hwsteele]

I have paper traded this for some time. You are correct with the 80% figure it works most of the time. Never played with the stops before but yours sound better than mine. It's nice to see that someone else does this.

 

[gonnamakeit]

thanks...

been going through the last 1-2 months off sunday opening on eur/usd but this weekend seems to be the largest gap and on some weekends there is no gap

 

[pip_boy]

its been good so far the last few weeks for my demo account. I try to wait until the last couple of hours of the asian session to place my order so that i can get a better entry point.

 

[jayjay121]

gap trading is a good strategy, i too have loked into it with stocks, It is about the only time of the day you can go against the trend, the reason being the marketmakers or specialists are trying to make the stock look cheaper or more expensive this time of the trading day, so better to trade with them then against them

 

[Gumping]

Would have been stopped out this monday, but I've made cash on nearly every gap I've seen. Also made it on Monday's after watching it begin to retrace and got in on the action.

 

[pelzar]

Trading the AUSUSD gap, this fine evening?

 

[nedal26]

e/u gap ...was nothing

 

[N Rothschild]

 

[hwsteele]

Wow you were right there was NO gap this week. Oh well just wait til next time.

 

[Doctor Leo]

In fact, the phenomenon you've noticed is much more interesting and maybe a bit more complex. Days-off gaps seldom occur, but if they do, most of the time they provide an opportunity to trade for far larger a time horizon than just 1 day. I would recommend to consider at least 1 week for a start, and then two subsequent weeks. Remember that there's just 2 types of gaps — prolonging and reversing, you all here speaking of the second kind only so far. These two types could be determined by both estimation of price movement BEFORE the gap and price movement AFTER it. In other words, you can start trade a gap as a reversing one, but then situation changes and it appears to be a prolonging gap.
Also note that most of the time Monday is the only day of the week after the gap when price could cross the gap ±some pips to and fro. And if it's not the case, then we see a strong signal to join the previous movement. Remember, all I say here is about days and weeks, no smaller!
And stops in trading such a setup should be anti-catastrophic, not actually a means of money management. Position handling should be performed only on time basis.

 

[pelzar]

eurusd gap?

 

[hwsteele]

Just a small one for the EURUSD, but the GBPUSD had a nice gap.

 

[pelzar]

Just a small one for the EURUSD, but the GBPUSD had a nice gap.

...but the cable gap hasn't closed the eurusd did!!

 

[lewis123]

I agree this strat is good.

I have used gap trading on stocks and It can work very nicely!

 

[hwsteele]

...but the cable gap hasn't closed the eurusd did!!

That is very true. That nice little double top that showed up on the fifteen minute chart was a nice warning to get out though.

 

[ctcalls]

I am not sure if until now there are many traders using the Gap on trading forex here. Because we know here, the Gap thing is not easy. If we are profit, then we will make money, but on the other side, we can lose money as much as we expect to make on the gap