What are Market Gaps?
Have you ever wondered what causes Gaps in price charts?
A Gap is an area on a price chart in which there are no trades. Normally, this occurs between the close of the market on one day and the next day’s open. Other factors such as a fundamental and political announcement coming from Governors and important members of financial institutions can also cause such Gaps.
For example, an announcement or speech which involves an initiative to cut interest rates could cause a Gap in the markets. This could result in the price opening higher than the previous day’s close. If the trading that day continues to trade above that point, a Gap will exist in the price chart. Gaps can indicate that something important has happened to the fundamentals or the psychology of the crowd that accompanies this market movement.
An event that triggered a Market Gap
On the 7th of November 2016, the Director of the FBI, James Comey, declared that they did not find any new evidence buried in the 650,000 emails that were found on Anthony Weiner’s laptop
The announcement came on Sunday evening, just before the financial markets opened for the week. However, this new update had very little chance of actually influencing people’s opinions. At this point, most people had already decided who they are going to vote for. The only question was voter turnout. Perhaps this news would encourage more Democrats to actually go out and vote. The chances of Hillary being elected were strong and this would mean a stronger dollar.
The main reactions on news like the above would be as below:
Good news for Trump: Bad for the Mexican peso, bad for stocks, and good for gold and silver.
Good news for Clinton: Good for the USD, and crude oil.
Market Reaction: With news of the exoneration of Hilary Clinton, the markets reacted exactly as we had expected.
Platinum traded the Market Gap and nailed 126 Pips with 20 Pips stop loss.
We used the Platinum Gap Trading Strategy as follows:
- Wait for the market open.
- Wait for the one hour candle.
- Place the Fibonacci levels.
- Wait for the Platinum Stop hunt Level.
- Match the Platinum Trading System entry.
- Take the trade with a 20 Pips stop loss.
- Aim for the 100% Fibonacci level.
If you would like to know more about this strategy, it is as easy booking a FREE Consultation with our senior traders.
The Platinum Gap Trading Strategy
Trading Gaps are not for impatient traders.
Platinum Traders use the perfect technical analysis and the Platinum Trading System to trade Market Gaps.
1) Gaps have an inherent directional bias and edge. Around 80% of the market Gaps are filled prior to the London open.
2) They happen around 4 or 5 times a month but if a strategy works around 80% of the time why not implement it.
3) If studied with perfection most Gaps will give you around 30-40 Pips depending upon the currency pair with a risk of only 20 Pips.
4) The Preparation work for trading Gaps is simple. The currency brokers open around 21:00 GMT. Once they are open if there is a gap figure out which type of Gap it is.
5) For Platinum traders, this is not a strategy that requires any thinking time it’s simply set and forget with alert and wake up to a trade result.
6) “Fire and forget.” The targets and stops are pre-defined so you don’t have to manage the trade after placing it.
7) As we are talking about FX Gap Trading here, slippage is very rarely an issue due to the massive 5.7 trillion liquidity.
8) The risk reward on Gap trading is very limited and with time all you need to do is trade the Gap with consistency and another benefit is the trade is generally over in a couple of hours.
9) Gap trades work in bull and bear markets equally well. You don’t need to predict the market’s next move.
10) Understanding the bias of the market after the open provides a trading edge for the rest of the day. This edge is helpful for optimising my entries on Platinum Longer Term trades.
“It is not enough to have a good mind. The main thing is to use it well.” – Rene Descartes
Have a beautiful day and an even wonderful week!
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The information you’ll find in this article is for educational purpose only. We make no promise or guarantee of income or earnings. You have to do some work, use your best judgement and perform due diligence before using the information in this article. Your success is still up to you. Nothing in this article is intended to be professional, legal, financial and/or accounting advice. Always seek competent advice from professionals in these matters. If you break the city or other local laws, we will not be held liable for any damages you incur.