As we all know, forex market closes in the weekends, and opens again in Monday. On the other hand, factors that influence currency exchange rates continue to go on. Therefore, it is very possible that when market opens in the beginning of the week, gaps appear.
This time I am going to talk about how to take advantage of gaps in forex trading that usually occur when market opens in the beginning of the week. As we all know, forex market closes in the weekends, and opens again in Monday. On the other hand, factors that influence currency exchange rates, such as politics and economics condition, as is any other human activities, continue to go on. Therefore, it is very possible that when market opens in the beginning of the week, gaps appear.
Weekend Gaps
Gaps in forex trading refers to the spaces on the chart where prices move sharply which resulted in almost zero trading between previous price to the next price. In the beginning of the week, prices could jump up or down compared to the last price before market closed in the week before. Gaps can also happen in the middle of the week after highly influential news release or market panics due to unexpected occurence. However, we are going to specifically talk about gaps in forex trading that occurs between close price in the end of the week with opening price in the following week.
Gaps that often occur in the beginning of the week have became the reason why traders avoid holding on to open position when market closes on weekends. It made sense because when market closes, we will be powerless and unable to modify open positions, while anything could happen at the same period. To be sure, economic and political condition of a country could change overnight and inflict major movement on the market. Exchange rates could change drastically at times when we are unable to do anything about it.
The gaps can become nightmare for traders whose positions got caught in Stop Loss or Margin Call when market opens in Moday morning, but it actually could also be an opportunity. Taking advantage of market gaps are basically similar to the way we can take advantage of fast paced price movement on news releases.
Example
To get a better sense on how to take advantage of the gaps, I have prepared an example. First, let's see the graph below, then follow the steps explained afterward.
If prices on Saturday at 03.58 (Jakarta time) is 1.5620, then we can place buy stop pending order at 10 pips above it, that is around 1.5630, with Take Profit around 20 pips in 1.5650. Also, place sell stop pending order around 10 pips below, that is at 1.5610, with about 20 pips Take Profit at 1.5590.
A while after market opens on Monday, check the pending orders. Cancel whichever order that is not executed. In the above example, the cancelled order was the sell order one. That way, we already managed to gain around 20 pips when market opens. Easy, doesn't it!? The only weakness of this method is that we have to sacrifice our beauty by ing later near market close time, and waking up earlier near market open time.
Well, that is what to do if we want to take advantage of the gaps in forex market at the beginning of the week. The choice is on your hand, of whether you want to close all position on weekends or contrarily, take advantage of the gaps.