Forex gap trading strategies quite obviously involve Forex market gaps, which can be seen after the weekends, when the markets open once again, because the market is open 24 hours a day on the other days of the week. They occur when the opening prices of the markets are different to the closing prices. These gaps present opportunities to Forex traders that can be very profitable.
The interbank currency market reacts to fundamentals and news releases over the weekends. This is why although the markets close for the small-time, individual Forex traders, the larger banks and corporations can affect the prices of currency pairs over the weekend, causing individual traders to see opening prices that differ from the market’s closing prices.
There are two types of Forex market gaps. Of course you can profit through trading either of the two types gaps. The two types of gaps that can be seen in the Forex market are: bullish gaps and bearish gaps.
Bullish gaps are gaps where the market’s opening prices are greater than the market’s closing prices. Bearish gaps are gaps where the market’s closing prices are greater than the market’s opening prices.
In order to profit from either a bullish or bearish gap, you should wait after the weekend for the market’s opening prices. If the opening prices are greater than the market’s closing prices, you have a bullish market gap on your hands. However, you shouldn’t place an order straight away. You should wait until you spot a bearish reversal pattern after the bullish gap, because it is at this point that you will want to consider placing an order to sell the currency pair in question. Many Forex traders who trade Forex market gaps will place their stop-loss just 1 pip behind the bearish reversal pattern’s high; this is generally a good idea. You should then close your order on the Friday of that same week.
With a bearish gap, when the market’s closing prices are greater than the market’s opening prices, you will want to wait until you spot a bullish reversal pattern on the Monday before placing an order to buy into the currency pair in question. You would most likely want to place your stop-loss just 1 pip behind the bullish reversal pattern’s low too, before closing the order on the same week’s Friday.
Forex gap trading can be risky, but if executed properly and effectively it can be very profitable. Forex gap trading strategies are also pretty simple and straightforward. It might seem a little strange to buy into currency pairs that have just gone sharply down in value and sell currency pairs that have just gone sharply up in value, however, the prices of currency pairs tend to combat Forex market gaps and fill them after they occur which is why gap trading can be very profitable in the currency market.
In conclusion, Forex gap trading strategies involve trading Forex market gaps that occur over the weekends, when the market’s opening prices differ from the market’s closing prices. Gaps can be bullish or bearish, but regardless, gaps can always be profitable. It can be risky trading gaps and they don’t always get filled by the markets but if these types of trading strategies are performed well, Forex traders who trade gaps can make a lot of money with ease.