What is Little or no Trading in Forex – Concept Of Gap Trading

The gap means those areas of the charts where the currency or stock prices goes up or down with only a little or no trading in the middle. This specific area shows the anomaly in the average pattern of the price of the stock and is known as a gap. There are many traders across the globe that are doing gap trading and making handsome amount from it.

Main Concept of Gap Trading

Commodity and Forex traders are exploiting gaps for many years. However, when the stock market closes up each day, then the gaps take place in it on daily basis. The main idea at the back of gap trading is that the price will increase at all times try to fill up the gap.

It sounds quite illogical and baseless yet there are some logical purposes for the price fill up the gaps or spaces in the stock market. When there are no price gaps, then there is no resistance in the gap region. It simply means that the price must have free space to move into the gap.

For the past couple of years, the Forex traders have started trading on Sunday’s evening gaps. The main idea is the same but the gap traders assume that the price will always fill up the gap.

Liquidity and Volatility of Gaps

Liquidity indicates how much the market is active at the present time while volatility is a measure of how the prices are changing in the market. As everybody knows that the currencies are affected by many factors like economic, political and social events.

There are a lot of occurrences that would trigger the prices to become volatile. So, the gap traders would need to be more careful while trading in gaps. It must not be assumed that the price will always attempt to fill up the gap as anything can happen.

So, gap traders must pay special attention to the liquidity and volatility of gaps. Otherwise, they would do the buying/selling into liquid. It is better to analyze the market to understand the right currency stock moves.

Forex Gap Trading Techniques

There are many traders who are not familiar with the gap trading techniques. Due to this reason, they have to face loss. So, it is imperative to understand some of the basic techniques to do gap trading proficiently. These techniques are explained below:

• The first thing you have to do is to choose a currency pair which has the high level of volatility. For example, GBP/JPY is considered as good currency pair for gap trading.
• When the day of trading starts from Monday then you need to search out for a gap. Ensure that the gap is at least five times the normal spread for the currency pair.
• In the event that you see Monday’s open is more than the Friday’s close then the Forex gap is said to be positive. So, you must open quite short positions at the beginning at the market price.
• You have to close your trade just after five minutes before the market of Forex closes on Saturday.

How To Take Advantage of Gaps

There are numerous ways to take advantage of gaps. However, the most popular one is to buy when the technical factor prefers a gap on the next day of trading. The next way to take benefit of gap includes buying/selling into liquid positions at the beginning of the movement of the price in the expectations of the good fill. You can also take benefit of the gaps by buying when the level of price becomes the main hold later than the gap has been filled up.