Just like I promised yesterday, here are a couple of weekend gap trades from yesterday. I suggested using GBP-CAD, but since the gap didn’t there I used JPY crosses, AUD-JPY and EUR-JPY. Following snapshots will explain how I look for entry points. I use mainly 5M charts to enter. Gaps were to the upside, so my intention was to sell both crosses.
Here we see when first potential point of entry was established at 67.45. At the same time target is decided to be 66.75, about 2/3 of total gap width.
As the price continued to develop, my entry point became even more conclusive, but still no fill. Price made another run up.
Unfortunately for me, there was no good entry point established higher, so my eventual trade was filled at 67.75. Price kept moving down sharply and target of 66.75 was met fast( I know, there is an error in the snapshot), for a gain of 70 pips.
Another cross I was following for this demonstration, EUR-JPY, fared a little better. It started largely the same, establishing entry point at the same time as AUD-JPY.
I placed an order at 126.18. After this price behaved a little differently than AUD-JPY and I managed to find a better entry point.
Notice a minor low marked “A”. This was a well defined selling point which happened to be at 127.20. My target for this trade was at 125.85, also about 2/3 of total gap width( or height, depending on your view). Gain of 135 pips. The 2/3 rule is a little flexible, I simply don’t try to squeeze every possible pip out of these trades. It is because the gaps will differ slightly from platform to platform and there is no way of knowing which one is “true”.
Notice that I didn’t attempt to “fade” the gap, reverse the trade at the target. Reason was that the trade happened late in a day. After going over hundreds of examples of gaps, statistically speaking, chances for a “fade” being successful, diminish with the passage of time. In the article I mentioned 24H rule. This was close. Fades tend to have higher degree of good results if they happen sooner rather than later after the open. Ideal window would be 4-10 hours from the time trading resumes Sunday afternoon.
Mike K.
First chart is little too big. Doesn’t fit. This very clever and simple. Do you trade this set up often. Do you think it can be a stand alone strategy?
Yes, firts chart is too big, my appologies. I trade the gaps when they are easy to spot and i happen to have time to stay at computer, which might not be always possible on Sunday afternoon. You probably can’t use it as a primary trading method. While, on balance, weekend gaps happen relatively often now, due to increased volatility, time will come when there are not many of them and that stretch can last several weeks or few months. It is a decent supplemental, opportunistic method.
[...] Re: Is forex trading on Sunday is safe? With the increased volatility last few months, Sunday afternoon trading has been OK. Now, when the market behavior is closer to historical averages, moves on Sundays are getting smaller. You can be an the lookout for opening gaps, but they don’t happen every weekend. Trading gaps-case study. | fxmadness.com [...]