Last Monday I was able to show a trade which “closed” the weekend gap but there was no “fading the gap trade”. Fortunately, I was able to do it yesterday. This time around, though, there was a little different twist- I missed “closing the gap” trade. The pair used was EUR-JPY, just like last week, for easier comparison.
Trading opened on most platforms with about 150 pip gap to the downside. I was looking for an entry point to a long trade and close the gap. Price slowly moved up the lower boundary of the gap. I expected formation of reaction point-minor high in that area, about 120.70. That would be my buy level. At that time price movement accelerated, and passed my potential buy area, which caught me completely by surprise. No trade. But I placed a sell order, for “fade the gap” trade. My rule of thumb is enter it when gap is about 2/3 closed. In this case it was 121.70. It all happened rather fast. Once the trade was filled, the objective was set to the low just before the gap was being filled. On this chart it was 120.15. Price missed it by few pips and I got out shortly after at 120.67 or 103 pips.
Lately I’ve been doing a lot of these trades. They are easy to recognize and implement and, if successful, set a nice tone for the week. These kind of market conditions don’t last forever, though, and eventually there might be a prolonged period of time when the gaps are nonexistent or too small for trades. That’s how markets work, any one condition changes slowly over time.
I took few trades on 5M charts of GBP-JPY. Despite of overall large daily price range, only one of those trades met my 100 pips target.
Remaining trades produced much smaller gains, but I can’t complain. Positive day, no losses.
At the moment I don’t really see any trades on the time frames suitable for this blog which I would like to take. Possible exception is AUD-CHF.
It is not strictly speaking extremely promising set up, but better than just about anything else at the moment. I placed a small buy order at 0.7965. Target is 0.8100. For anything else I must await farther price development, and keep buying 5M breakouts of GBP-JPY. There is one more matter regarding “the beast” that needs some explaining, but I’ll do it tomorrow.
Mike K.
Nice work on the Yen pairs. Can you explain how you calculate the 2/3 rule. I seem to be missing something. Thanks.
The pound had a good day. Do you think it is ready to turn around?
It is simple. Take the difference from where the market closed on Friday and opened on Sunday and calculate 2/3 of that. I do it in round numbers, not the exact pip.
Too early to tell, B.J. Besides I’m not sure what time frame you are talking about, but probably long term. I would wait here before commiting to any trades with long holding expectation. Even if Pound is near bottom, it still might take long time in some sideways moves.
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