DislikedGap trading can work out very well when understood. There are also a few add-on rules that I have that seem to reduce risk. Gaps occur all over the place but the only ones I am interested in are the ones that happen on Sunday. Yen crosses are the currencies that offer the best opportunities. My personal favorvite is GBPJPY.
So the way gaps work for those who don't know is this. If price gaps down then a resistance line is formed at the top of the gap and if price gaps up a support line is formed at the bottom of the gap. SO just as in other areas of S&R these are places you can buy and sell from as price usually goes back to "close the gap"
But what I look for is the more speculative venture of will a gap be there on Sunday which means I have to enter the trade late on Friday near market close.
My rule is simple. I only hold sells, NEVER buys. Let me say that again. NEVER buys. Historically sells payoff much better.
What is my signal? I look for a BIG rally on Friday that ends near a resistance line. I go short near the close on Friday and I PAY interest for the negative carry.
If the market opens lower on Sunday you can take the money and run, always wise. You can hold out for more. Initally you will start to lose money as price moves to close the gap. If it fails to do so you are usually in for a big payday. One of the things I do is take the trade on GBPJPY and watch EJ and UJ . If they close their gaps first then there is a good chance that GJ will turn and go lower as will the other xxxJPY crosses. About six weeks back this happened when GJ broke through a tough resistance area in the 208.70 area on Friday in the closing hour of the session. On Sunday it opened 200 pips lower. It then retraced 100 or so of those pips. At that time the EJ and UJ closed their gaps. GJ then proceeded to drop another 400 pips from there.
Now, of course the other question is, OK I go short and on Sunday price goes up, now what? That can happen, that will happen, that has happened. But it has been my experience that price doesn't gap up as high as it gaps down. Usually 40 pips up is a large gap. So you take the trade and Sunday your sell is down 40 or so pips. The fact that the tendency is for price to close the gap is in your favor of closing the trade at or near break even. Then of course you can go long from the resistance area at the bottom of the gap.
I realize this is a bit of a departure from the no brainer trades. My apologies, Billy Ray. I certainly don't want to alter the course of this thread. I like how it has developed.Ignored
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- Jul 11, 2008 6:36pm Jul 11, 2008 6:36pm
Energy and persistence conquer all things! Ben Franklin
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- Jul 11, 2008 10:20pm Jul 11, 2008 10:20pm
Energy and persistence conquer all things! Ben Franklin
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- Edited Jul 12, 2008 6:20pm Jul 11, 2008 10:47pm | Edited Jul 12, 2008 6:20pm
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- Jul 12, 2008 12:56pm Jul 12, 2008 12:56pm
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Thank you Malcolm, Belekas, Jim, raczekfx and Ryanmcd !
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- Joined Feb 2007 | Status: AKA Gatersaw | 386 Posts
It really is that easy.
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"Timing Is Everything. Really I Swear It Is"
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Thank you Malcolm, Belekas, Jim, raczekfx and Ryanmcd !
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