According to my 2011 poll on chart patterns’ popularity, about 20% of this blog’s readers are using price gaps in their trading. In my turn, I have already posted information about a trading strategy based on filling the gaps (on GBP/JPY). Additionally, I have provided a tool for testing the weekend gap profitability. Now, it looks like the gap trading is becoming quite popular in the Forex community — we now have two active topics on EarnForex.com forum. So today, I would like to find out how the traders treat gaps. Some explanations to the poll options before proceeding to the vote:
- Trading in the direction of the weekend gap is a popular technique in stocks. The news that appeared during the market inactivity period and made the price jump on Monday’s opening is not going to disappear, so it is logical for the asset to continue moving in line with the gap. For some reason, in Forex, this rarely works.
- Trading against the gap, expecting it to be filled, is based on the assumption that most gaps are some unnatural price movements and should be compensated. This is often proved to be correct with volatile currency pairs — after all, the gaps are usually quite thin compared to the average daily trading range of such trading instruments and thus have a nice chance of getting covered.
- One gap trading method I have never heard of until about a week ago is to open a position on Friday, in anticipation of the gap. It is definitely a more difficult way to deal with the price jumps because it involves a lot more guesswork, but it is potentially more rewarding as the usual
after-gapaction can also be used to earn profit.
- Of course, many traders prefer to close all positions before weekend and stay away from currency pairs that gapped too much on Monday. Rightfully, they believe that such a chart pattern is a definite sign of a high uncertainty level.
- The fifth poll option is pretty
If you have some questions or comments about the weekend gap trading, please feel free to reply to this post using the form below.