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  • #1,041
  • Jul 11, 2008 1:01pm Jul 11, 2008 1:01pm
Quoting Iron-man
Gap 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.
Do you have any gap expectations going into this weekend? The UJ rallied about 100 pips off its low (although currently down about 30 from that). The high of the rally was nearly to the pip of a pretty good resistance level, and price is creeping back to it now.
  • #1,042
  • Jul 11, 2008 3:36pm Jul 11, 2008 3:36pm
Quoting finswin56
Do you have any gap expectations going into this weekend? The UJ rallied about 100 pips off its low (although currently down about 30 from that). The high of the rally was nearly to the pip of a pretty good resistance level, and price is creeping back to it now.

I actually missed the close today so I don't have any gap orders in this weekend but yes what you describe could certainly pay out if you took it.

The good news is if it doesn't work or the gap closes too quickly for you to harvest the pips. (Limits are hard to set since the market can gap past them) Then you can usually get out at or near break even. Then you can watch price action and play the top and bottom of the gap like any other S&R set-up.

What I really like to see is price breaking resistance in the final hour of trading and pushing higher. It's much like a news spike. It a high probability fade.
Energy and persistence conquer all things! Ben Franklin
  • #1,043
  • Jul 11, 2008 4:26pm Jul 11, 2008 4:26pm
Quoting Iron-man
I actually missed the close today so I don't have any gap orders in this weekend but yes what you describe could certainly pay out if you took it.

The good news is if it doesn't work or the gap closes too quickly for you to harvest the pips. (Limits are hard to set since the market can gap past them) Then you can usually get out at or near break even. Then you can watch price action and play the top and bottom of the gap like any other S&R set-up.

What I really like to see is price breaking resistance in the final hour of trading and pushing higher. It's much like a news spike. It a high probability fade.
Good stuff, and thanks!

I'm not in, but I'll be watching intently
I've always figured there had to be a good way to take advantage of the gaps, but didn't know how.
  • #1,044
  • Jul 11, 2008 7:20pm Jul 11, 2008 7:20pm
Quoting finswin56
Good stuff, and thanks!

I'm not in, but I'll be watching intently
I've always figured there had to be a good way to take advantage of the gaps, but didn't know how.
Good to hear. Even if you never go for the trade over the weekend these gaps can help you find market direction on Sunday.
Energy and persistence conquer all things! Ben Franklin
  • #1,045
  • Edited Jul 12, 2008 3:20pm Jul 11, 2008 7:47pm | Edited Jul 12, 2008 3:20pm
Quoting BillyRayValentine
Hi Pastork,

A. 1.5685 is a solid support level
B. Major, upward sloping diagonal trendline
C. Minor fibonacci level (.382) and (.682) crossing over from the downside.

All 3 coming together at the same time, so I want to buy it at 1.5685 or slightly lower. I would be willing to buy it when it hits the diagonal trendline though, if it can break 1.5700. Dont want to miss it.
Hi BRV,

Sorry I don't know how to place a link back to post 784 and it's the EUR chart not CHF. But my question has to do with the EUR set up you spoke about in that post. In that post you said there may be a possible entry long at 1.5685. Looking after the fact the price went down to 1.5610 and went up from there. My question is are you just entering a long position when you hit your predetermined range or price, in this case 1.5685 or are you looking for a specific candle or candle formation to enter? If I would have entered at 1.5685 I more than likely would have taken a loss if price moved 75 pips against my initial entry. I have tried a method like this before (enter on the pullbacks) and I constantly found myself entering too soon and having large draw downs or watching the price just keep going in the opposite direction until I pulled the plug with a large loss. I know that losses are part of the business but I would like to avoid getting into the trade too soon and having to sweat out the draw down.
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  • #1,046
  • Edited 8:28am Jul 12, 2008 6:48am | Edited 8:28am
Hi....

As it is weekend now and maybe you have more free time I will recommend to see
one great video. I think it fits well with the spirit of thread...

http://transcripts.fxstreet.com/2008...tanding-t.html
  • #1,047
  • Jul 12, 2008 9:56am Jul 12, 2008 9:56am
Morning all,

Have been following this thread for quite some time, and today I wanted to express my willingness to join the experience and learning endeavor already well undergone.

From the position of an unexperienced 4 month-live account holder I wanted to try and contribute with a question aimed at this thread: any opinions on eur/usd m30 closing. From my ongoing observations throughout this week the pair closed within the upper boundaries of 1.5900-50 evidently pushed by overwhelming negative market sentiment after that consolidation during Asian session. How should we go about this Friday price behavior ? Is it a good potential short entry well before smart money reloads on 1.5750 or the northbound train has just left the station after quickly reloading at the 1.5900 level.

ANY insight/suggestion/comment is well-encouraged.
Thank you Malcolm, Belekas, Jim, raczekfx and Ryanmcd !
  • #1,048
  • Jul 12, 2008 3:54pm Jul 12, 2008 3:54pm
Dear BRV and Thread,

May I repost the following question?

Sorry for the following dumb question: when you are drawing horizontal lines for resistance, are you drawing your lines always at the bottoms of bars or sometimes do you draw the lines at the tops of the bars (and the reverse question for support)?

Thanks,

L.
  • #1,049
  • Jul 13, 2008 9:40am Jul 13, 2008 9:40am
Quoting Lenoxer
Dear BRV and Thread,

May I repost the following question?

Sorry for the following dumb question: when you are drawing horizontal lines for resistance, are you drawing your lines always at the bottoms of bars or sometimes do you draw the lines at the tops of the bars (and the reverse question for support)?

Thanks,

L.
Hi Lenoxer, didn't forget about you! Just looking for a reactionary level, primarily. Both highs and lows, but better to be both. Resistance is just defined as a level blocking price as its on its move up (highs), and support is defined as a level that blocks price movement on its way down (lows). So if we have a support level that gets broken, we're looking for it to turn into resistance on the next move up. Or if it doesnt get broken, looking for it to be used as support once again....here's just a basic chart attached I've got in the "stock photo" library: is this what you're looking for basically?
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  • #1,050
  • Jul 13, 2008 9:54am Jul 13, 2008 9:54am
Usually over the weekend ccy's snap back to a near balance kinda like a rubber band. This image shows EUR (blue) on top which should come down and USD (green) on bottom which should gap up to "balance". This is a typical scenario but I do not play these trades due to potential fundamental changes over the weekend.
EURUSD gap down on Sunday.
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It really is that easy.
  • #1,051
  • Jul 13, 2008 12:56pm Jul 13, 2008 12:56pm
And I never forget about you, too, Billy. Thanks a lot. Good chart. Good explanation. As usual.

L.
  • #1,052
  • Jul 13, 2008 5:21pm Jul 13, 2008 5:21pm
Part of me thinks we'll see a strong dollar this week (at least until options day on Fri, which I haven't fully researched yet).

At the same time, It's kind of hard for me to ignore this set up at 1.5800 level.
It's the 50% ret from the last leg up, and just a few pips away from the fall on NFP day July 3rd (my Fib's could be all ef'd up too though, as I'm never sure I'm drawing them right).

Anyway, the level was also was pretty stiff resistance leading up to Friday's jump, and if you scale back to the 4H time frame, it also shows some historical significance over the past few months.
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  • #1,053
  • Jul 13, 2008 7:03pm Jul 13, 2008 7:03pm
Cable may give us a buy at 1.9791.
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  • #1,054
  • Edited 7:42pm Jul 13, 2008 7:31pm | Edited 7:42pm
Quoting good
Cable may give us a buy at 1.9791.
Good job guys! Keep them rolling!
  • #1,055
  • Jul 13, 2008 7:58pm Jul 13, 2008 7:58pm
The Aussie has just filled the gap and is holding above the 9660 range that was the high tested a half dozen times previously. Fundamentally, as long as labor numbers keep soaring there is little reason to think 9800 isn't in the cards this week.
"Timing Is Everything. Really I Swear It Is"
  • #1,056
  • Edited 8:41pm Jul 13, 2008 8:23pm | Edited 8:41pm
Quoting TexasforEX
The Aussie has just filled the gap and is holding above the 9660 range that was the high tested a half dozen times previously. Fundamentally, as long as labor numbers keep soaring there is little reason to think 9800 isn't in the cards this week.
Completely agree and no way I would rule it out, either. I was actually just looking at data going back again to the early 1980's seeing where the next pull in prices are. In 1982, the last time these highs were seen, liquidity was bare boned compared to what it is now, so we don't have the dynamic support and resistance levels we are used to today. The next obvious areas for fades are at the double zero areas (.0098 and .0099), not just because they are double zeros, but because these are the levels that saw the most price action the last time around. (.9850-60 also could work out) .0099 holds higher probability (actually a trade I posted earlier in the thread at this level) but either way these new highs are very good for us as they present new both buying and selling opportunities. New highs are our friends in this respect. In fact, if you had the guts to sell on Friday, price made a high at 0.9716, only 4 pips higher than my last mark going back to 1982. So use all the data, it works just the same, is the bottom line. This same scenario happened the last time AUD made a high at 0.9650. Here is a chart showing some more specifics:
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  • #1,057
  • Jul 13, 2008 8:49pm Jul 13, 2008 8:49pm
this is just a rough draft and a starting point for me please keep that in mind.....
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  • #1,058
  • Jul 13, 2008 9:01pm Jul 13, 2008 9:01pm
Quoting good
Cable may give us a buy at 1.9791.
does this constitute as a no brainier trade? if not, what exactly constitutes a no-brainer ?
  • #1,059
  • Jul 13, 2008 9:17pm Jul 13, 2008 9:17pm
I Was just looking at eur/usd on hourly and my mind is just screaming to short that euro on a move below 1.5875. Is it just my me trying to materialize some sort of a well-known price action pattern, or euro just bumped its head against some heavy selling pressure and heading down towards 1.5700-50. What do you thing Thread ?

-fxJ
Thank you Malcolm, Belekas, Jim, raczekfx and Ryanmcd !
  • #1,060
  • Jul 13, 2008 9:24pm Jul 13, 2008 9:24pm
After a day like Friday it is rare that we see the dust settle in 72 hours. The higher opening gap tonight and the quick shove to close it down showed us how quickly the market can react to technical advantages such as this.

US Equity news shattered a lot of hope of much of anything countertrend happening on Friday, but as usual, it happened on a Friday. Fridays are always days we want to use caution in general and keep our hopes low of catching any tops, as I have explained earlier in the thread. Fridays and option ex day are also great days to ride a trend, so they could easily be a lot more lucrative in that respect, as our expectations for trend continuation are generally higher, especially when you have a pop in price on news like this past week. Playing a bounce on EUR from the 1.5800 pullback, for instance, would have paid out about 150 pips. Not bad for 3 hours of work.

Option exp. is coming this Friday, and we're now sitting around many crucial areas for a lot of different pairs. AUD made new highs, EUR is near them, and both JPY and CHF are near some very significant bottom ranges. I wouldn't be surprised to see a lot of these levels knocked out this week in anticipation for Friday, so I'm expecting a good amount of volatility, but overall great for trading in the direction of the trend. Look to buy/sell on pullbacks, and dont be alarmed by new highs/lows or crucial areas getting knocked out.

Just as easily as they could be knocked out, however, price could want to stay within them, as without access to bank flows, we don't know where the most lucrative opportunities will be. I would recommend taking your profits when you see them and leave pieces of trades to run, and you'll catch the trend 50% of the time, regardless of which way you know its going (up or down, right?!).

A strategy like the one we talk about here allows us to take place in all the intraday noise safely while not losing our heads worrying about what is going to happen next due to fundamental speculation. The unexpected can be our friend more than it can be our enemy, as just discussed.

Because of the previously mentioned items I'm putting the pause on the fade of the most recent EUR highs (1.6000 area) which I posted last week, until we see how things develop over the next few days. Either way, expect the unexpected, but the basics remain true, as we are now swimming in opportunity thanks to last Friday. You know what to do from here!
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