Gap strategy that provides guaranteed earnings on price gaps
A more detailed study of the historical features of trend movement reveals a lot of patterns that in one way or another help to form Forex strategies.
One of these patterns is the occurrence of gaps in the trend movement.
Forex gap is a price gap, when it occurs there is a certain difference between the end of the last candle and the beginning of a new one.
Typically, gaps occur after weekends or holidays; the trading session on Friday closes at one price, and on Monday it opens with some gap.
The reason for this phenomenon is the change in the exchange rate that occurred over the weekend or holidays, while trading was closed.
Knowing this fact, you can build your strategy on gaps and make a profit. It would seem that it would be easier to find a gap and open an order with the expectation that the price will close the gap, but in practice you need to take into account several important points.
What is the gap trading strategy?
It is worth trading only if there is a price gap, if one is found on the chart, only in this case we proceed to opening transactions.
The gap trading strategy takes place in several stages:
1. Determine the size of the price gap; it must be at least 20 points or 200 if you have a five-digit quote.
2. Determine the direction of the transaction - if a gap has formed lower on the chart, then a sell transaction is opened, and a buy transaction is opened higher. The implication is that the course will move in the direction of the gap and close it.
3. We place a pending order, the trigger point of which is the closing of the gap, shown in the figure.
4. Calculate the take profit size - we determine the value of this order depending on the size of the gap, I put no more than 10-15, not much, but reliable.
5. Stop loss order – we also set the limit to 15 points.
If you want to really increase the size of the planned profit, if you do not limit this indicator with a take profit order, but set a trailing stop.
The second, simpler option.
It is recommended to use a simpler option; in this case, you detect a gap and immediately place orders in the direction of closing.
That is, the price before the weekend was 1.2660, after the weekend the first quote was fixed with a price of 1.2720, which means we open a sell order and wait for the gap between quotes to close.
In the future, you can take up to 60 points of profit, exactly this value of the price gap that has arisen in Forex, and you can hope that the price drop will also be no less.
Also, if you find a gap in the middle of the trading session, and the price is still moving away from it, you can wait for the moment of reversal and open a position, but this will be a more risky trade.
On average, the gap strategy when used on Forex allows you to get from 10 to 50 points of profit per transaction, the only obstacle is that this phenomenon occurs quite rarely, but to make a profit it is worth using other Forex patterns.
Unfortunately, there are exceptions to this rule, so if you opened a trade in the expectation that the price will close the price gap, try not to ignore it, or at least do not forget about the stop loss.
Additional materials:
Gap statistics script - https://time-forex.com/skripty/statistika-gep