Gap in Forex for many traders seems to be a sort of disaster, because it appears unexpectedly and is a consequence of force majeure. Someone is lucky and manages to earn on it many times more earnings for the usual period. And someone loses everything. It is worth remembering here on January 15, 2015, when the Central Bank released the Swiss franc to free floating. Then, not only investors immediately closed on margin trading, but even the British daughter Alpari went bankrupt.
Gap in Forex
Quotes on the chart are represented by a continuous line. This is partly logical, because the price changes gradually. Exchanges except weekends work around the clock, so regardless of the session, the opening price of a new candle roughly coincides with the closing price of the previous one. Gap in Forex is a term meaning a situation when there is a sharp gap between the price of a new discovery and the old closure of a candle. On the graph, this is visually indicated by a break in the price line.
More often a gap occurs in the foreign exchange and futures markets, less often in the stock market. It appears after the weekend and is due to any strong fundamental unpredictable factors (economic decision, terrorist attack, accident, etc.). Technically, this is explained by the fact that traders can instantly rearrange orders when news arrives, and the price shift is so strong that gaps appear.
Types of Gaps:
- Gap to break (breakdown) – appears when the price has long been in the flat state, then abruptly goes out of it in the required direction. It can be formed by large capital and professional traders.
- The gap gap (continuation) – appears between the candles with large bodies, indicates the continuation of a strong trend.
- Gap on izlet (exhaustion) – appears in the direction of the main trend and symbolizes the last spurt before the turn.
Filling a gap is a situation when, after a price gap, the price smoothly returns to the level from which it began. In trading circles, the gap is also called a window, and when it fills, they say that the window closes.
Gap in Forex can form a professional (which indicates the continuation of the trend) or inexperienced traders (talking about reversal). Professionals open long positions after a series of sales. Beginners, on the contrary, are trying to enter the market in a growing market, trying to “jump into the last car of the departing train,” while the professionals are already selling.
Traders suggest using a gap in Forex as follows: open positions in the direction of closing the gap. For example, we see the opening price below the Friday candle in a currency pair on Monday. Open a deal to buy (in the direction of closing the gap). You can wait 10-30 minutes from the moment of the opening of the session, so as to start moving by inertia in the direction of the gap. But with setting stops, it is worth experimenting individually for each currency pair.