Trading Forex - Exploiting Weekend Gaps Most trading is done using some type of technical analysis. There is an almost infinite number of indicators which can be used in myriad of ways. Trend lines, retracement levels, Fibonacci numbers, Elliot wave analysis, candlestick patterns, point and figure charting are also widely used.
Just about any form of technical analysis
can be used for trading Forex. Yet there is a trading
application popular in other in other financial markets
that is not widely used in currency trading - price
gaps.
Most traders wouldn't even notice it,
making it useless for any practical approach. Also,
Forex market is the most liquid and deep of all
financial markets. This means that just at about any
price level there are enough buyers and sellers to make
price gaps almost impossible to form.
Also, the target should not be the
absolute width of the gap, but rather a point about 2/3
into the gap. For example, if GBP-USD closed on Friday
at 1.6200 and opened on Sunday at at 1.6140, we wouldn't
try squeeze every possible pip, but rather settle for an
objective around 1.6180. This vastly improves success
rate.
Here also the 2/3 rule applies- our sell
order would not be placed at at 1.6200 but rather 1.6180
or so. Target for this trade would be an area of the low
formed before this gap was filled. This technique is
even easier to use than the first one.
Statistically, price tends to keep on
going rather than reverse in this situation. Perhaps
most importantly- confirm gap existence on at least one
more platform. Once it is confirmed on another charting
server, chances for successful trade are greatly
enhanced.
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