In this post, I would like to describe to you an interesting forex strategy based on trading signals from gap. What is a gap and what are the basic principles of trading with it. In the meantime, we will dwell on how gap is traded, what signals exist for entering the market using such gap on the price chart (between the closing of the current bar and the opening of the next bar), and what trading tactics to use in this case.
As you probably already know, there is such an interesting fact on the market that if on Monday the Forex market opens with a gap, then in the further movement, the price almost always moves towards bridging this gap on the chart. Hence the first rule of the strategy for trading on gap - all positions will be opened in the direction of overlapping gap.
Therefore, in order to trade on gap using this Forex strategy, we select the most volatile currency pair, for example, it can be: GBP / JPY, USD / JPY, EUR / JPY ... In extreme cases, you can choose the standard ones: Euro / Dollar or Pound / Dollar. Use the chart timeframe - D1.
Now the rules of the gap trading strategy and signals for opening positions.
If at the opening of the Forex market on Monday, you see a gap, i.e. the gap between the prices of closing on Friday and opening on Monday, we open three positions with the same lots towards the overlap of the gap.
And therefore, the Friday bar is above the bar of the new week, which means you need to open Buy deals. After that, set take profit for positions at the following levels:
Stop loss for this forex gap trading strategy is set at a fixed distance, which is determined from the average volatility of the selected currency instrument multiplied by 2.
That is, if the Euro / Dollar passes approximately 70-100 points per day, then the stop loss for our Forex strategy is set at the level of 140-200 points from the opening of the position.
To move stop loss levels for this trade on gap, I recommend using the manual trailing stop technique , that is, after taking profit at the first take profit, we move all levels of protective stops to breakeven, after taking the second profit level, we move stop losses to the take profit line of the first one. positions, etc.
Similar trading rules for this gap strategy are used for sell trades, only the opposite is true.
So, friends, let's summarize the algorithm of actions for this gap strategy once again:
Trading on gap has been showing a stable and profitable result over the past two years, and of course such a forex strategy is worthy of the attention of most traders.