Forex Strategy Gap | Trading Strategies
Forex Strategy Gap- interesting trading system that uses one of the most problematic phenomena in the Forex market – the weekly gap between the closing price last Friday and the opening price of the current Mondays. The gap stems from the fact that the interbank foreign exchange market continues to react to fundamental news during the weekend, opening Monday at a level with the highest liquidity. The strategy offered is based upon the assumption that the gap is a result of speculation and extra volatility, so the position is opened in the opposite direction can become beneficial after a few days.
Characteristics of Forex Strategy Gap
- Use regular negotiations with clear rules.
- It can not be hunting or premature triggering of stop-loss.
- The benefit is statistically proven.
- You need to open some positions at the start of week and close just before the end.
How to Trade?
- Choose a pair of currencies with relatively high level of volatility. I recommend GBP / JPY because it has shown the best result during my test. But other JPY pairs based currencies can work well. Incidentally, it is good for use with all major pairs of currency strategy simultaneously.
- When the new week starts look if a gap is. The gap must be at least 5 times the currency pair spread larger.
- Otherwise it can not be considered a true signal.
- If the opening Monday (or Sunday afternoon if you trade in North or South America) is below Friday’s close (or early Saturday if you trade in Oceania or East Asia) the gap is negative and you must open the long position.
- If Monday is opening up Friday’s closing the gap is positive and you must open the short position.
- Do not put the level of stop-loss or take-profit (a rare strategy is done the stop-loss is not recommended).
- Just before the end of the weekly trading session (for example, 5 minutes before the end) you must close the position.
You can see 7 passes weeks GBP / JPY (from May 24, 2010) and all of them have gaps. July 6 gaps give the right signals that result in much benefit. The last gap gives the wrong signal and yields an average loss. The average spread for GBP / JPY was 3 pips during the period of example and all gaps were wider than 15 pips, making a correct signals. The total profit was 1,612 pips in seven weeks – not bad.