Forex Gap Strategy
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.
- Regular trading with clear rules.
- No stop-loss hunting or premature hits.
- Statistically proven profit.
- You have to open position at the week's beginning and close it
right before the end.
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
- 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.
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.
Use this strategy at your own risk. EarnForex.com can't be responsible for
any losses associated with using any strategy presented on the site. It's not
recommended to use this strategy on the real account without testing it on demo
Do you have any suggestions or questions regarding this strategy? You
Forex Gap Strategy with the fellow Forex traders
on the Trading
Systems and Strategies forum.