1st on Forex: For Your Trading Success by 
Sunday Afternoon- EST
I usually like to do my beginning of the week analysis on Sunday afternoon’s and occasionally trading opportunities will present themselves! One of these opportunities is a gap that occurs during Sundays Market open.
GAP Defined: A gap occurs when price jumps from one bar to another with a considerable amount of price distance in between the bars. The most likely cause of gaps is due to a lack of liquidity, volume, and market participants. One of the nice things about Forex trading is that typically you will not see gaps on charts. Disallows the Forex trader to take advantage of all market moves. The only time that this usually happens in the Forex market is when the markets are reopening on Sunday afternoon/evening EST (Monday’s Open)
The Gap Strategy - in a Nutshell is that when you have a gap it will be filled. The opportunity for this strategy occurs more often in the stocks, equity, and futures world due to the fact that those markets open and close on a daily basis with several hours in between. The reason why gaps rarely occur in the Forex world is due to its 24 hour, highly liquid nature. So when a genuine gap is posted on Forex chart. It’s time to take notice.
There could be legitimate reasons for a gap to occur, such as a geopolitical, economic, or natural disaster type of event that takes place before the institutional traders begin taking their seats again.
Carrying a Trade Over the Weekend - These gaps also highlight the potential risk of carrying a trade through the weekend. In the event that there is a legitimate reason for a gap, price may move hundreds of pips and never come back to fill the gap for quite a long time. Perhaps even months! This can obviously be detrimental to any account. So it is always wise to judge the level of risk before the weekend, and possibly readjust your trade. Try to calculate how wide your stops should be for minor and major gaps. You might even consider closing trade and reopening with a new position on Monday.
Example: Looking at the chart that I have posted – we have a nice gap that occurred Sunday October 29, 2006 on the GBPUSD. Friday’s close was at approximately 1.8975 and Sunday afternoons open was approximately 1.8955 That’s s a gap of about 20 Pip’s! In this example on the three-minute chart, you can see that price coiled very nicely back up to fill the gap.
More importantly, you should notice that Friday’s close had created a resistance level that held for several hours. Price was repelled from the resistance zone twice at approximately 20:00 in the course of six minutes. At 21:30 the gap was filled and then continued up to 8985, which would have allowed for almost 30 pips, if you would have participated in the entire move.
Be Careful: Now don’t just take the trade before you do a little bit of research. Determine if there is a logical reason for the gap. Check the other "Majors" to see if they are all gaping. If they are then check the news quickly to find out what may be the cause. You may want to go with the Gap. if everything basically looks the same as Friday afternoon fundamentally, and there’s no real surprises, then you can probably expect that this gap will be filled within a short/reasonable amount of time.
So that’s a quick lesson for today, as gaps could be a great way to start your week!
Good Trading - Jerry Furst is "1st on Forex"
Hello Jerry,
I have just read your article titled “Gaps on forex charts - they can happen!”. I have traded equity CFDS for about two years but never have traded forex. I have been a swing trader who held his position for about 4 to 5 days and I intend to use the same trading approach for the Forex market. The main reason that prompted me to switch to Forex from equities is the rare appearances of gaps on a daily forex chart. However, forex gaps on a tick chart are more common. Hence, to help me adjust my position sizing for such forex gaps, could you please answer the following questions, assuming that we use the price quotes offered by forex ECNs rather than market-makers:
1) With regard to the major currency pairs, how big were the gaps on their tick charts immediately after news of the terrorist attacks on the World Trade Center back in Sept 11, 2001?
2) What would be the typical gaps on the tick charts immediately after economic releases such as interest rate announcements by the Fed, non-farm payroll numbers, etc? Thank you.
Hello Loc Hoang!
Welcome to the Wonderful World of Forex, where things work a bit differently from the equity world. Your question is regarding Gaps on Tick Charts, specifically 9-11 and FOMC, NFP reports. On Sept 11 the GBPUSD had a low of 1.4533 and a High of 1.4776 a nice move of 243 pips. but the Daily chart is uninteruppted and the FX markets never closed. Tick charts are not available for review.
GAPS on tick charts around News reports will vary based on your ECN/Broker but will usually appear as a spike. In fact I use a line chart when watching the tick charts around news. Trying to het a market order in during high volatility news events like NFP and FOMC can be dangerous. If you are noew to FX trading - tale your time learning to demo trade these events and find a broker that allows you to trade in small block sizes of 1,000 and 10,000 units to trade the live platform with small amounts of real money to see how your broker fills your orders. I hope that answers your question.
As a suggestion - Try calculating your profits and stop losses pre-news and “set and forget” your trades. Unless of course you truly like the adreneline rush of trading on the bleeding edge of “market” execution.
I do…. both!
Good trading and keep me posted on your progress.
Jerry Furst - for “1st on Forex” Post your questions via the link below
I notice the charts begin to move Sunday at 11:30 EST on tradingcharts.com, with lots of gapping from the previous close, and opportunities to exit the previous weeks positions profitabily that do not recur during normal trading hours. I am trying to find a broker (New Zealand?) where I can trade during this interval. Who is trading, and where, during this period?
Paul
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Hi Paul,
Good Question and Observation regarding GAPS. Trades made from 4pm-6pm EST Friday and before 3pm EST Sunday are primarily institutional. Be very careful as this is the FX “Twilight Hours-Zone” Small trades may post on your charts. Your access to the FX market depends on your broker. Market orders should almost never be used during these times. I try to never say never - but this is a rare exception! Never get too excited when you see GAPS - they will usually fill - but they may test your stops 1st!
Feel free to post your questions and Good Trading!
Jerry Furst - IEN-FX for 1st on Forex
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Jerry, in general, do you use a 1:1 risk to reward ratio on gaps, have a certain stop (e.g. 25 pips), or do you place a stop below a support or resistance level? What have you found to work the best? Also, what pairs are your favorite to play the gap on and why?
I made a program for Metatrader that enters trades on sunday openening gaps that are bigger than 10 pips. If the gap was bigger than 10 pips the position is opened when the price is lower than the opening bar by the gapsize-gapsize/2 or conversely gapsize+gapsize/2. This is because the gap usually continues to widen a bit more. All gaps are filled usually within 2 days maximum. This expert advisor is attached to every currency available on the brokerage platform you are running. If the market gapped down, we go long. If the market gapped up, we go short. That’s it and it works. Use on hourly charts. Only opens a trade on Sunday.
Grant
“One of the nice things about Forex trading is that typically you will not see gaps on charts. DISALLOWS the Forex trader to take advantage of all market moves.”
Disallows = This allows
Signed,
English teacher
Trying to “het” a market order in during high volatility news events like NFP and FOMC can be dangerous. If you are “noew” to FX trading.
English teacher 2.
But yes, the ‘Disallows’ one got me thinking on whether that was meant to be the spelling, based on what is read afther the word in the sentence.
Very nice article.
Want to know if anything has changed since 2006.
Also would like to know which EA was talked about above?
Thank you !