It has been a while since I discussed opening gaps here. Reason is simple – not many of them have been forming lately, and those that did were not very convincing. They must be of sufficient size in order to be exploited and should be visible on more than one trading platform. Last few months were a gap poor environment, which is very typical. Gaps, like any other behavioral pattern of financial markets, can be abundant for extended period of time, only to disappear with changing market conditions for equally long stretches.

One of the readers posted a question about them in the comments to the Euro swaps post. I noted there that the best candidates for trading the gap last night were AUD-JPY, CAD-JPY and NZD-JPY. In other words, Yen crosses with the commodities currencies. They were all in about 40 pips ranges, about the size that I want to see to make sure the gap is real. Also, prices moved in opposite direction far enough to justify the trades and not looking for 10-20 pips but a little more.

Kiwi-Yen felt best, because of the steepness of the sell off. It was no huge by any stretch of imagination, but the magnitude was increased as compared to most recent price action. Entry here was decided on smaller time frame and happened to be at 63.16, targeting 63.90, or about 75 pips. For trading purposes I want the price to reach about 2/3 of the gap, not holding out for the last few pips.

Here is what happened. So far price reached only 63.80 at its highest point, short of my objective and touching only the bottom of the gap. It started to retreat and I decided to take profits, which turned out to 49 pips. This chart was not the only reason for closing the trade, AUD-JPY was more prominent one.

Here price closed the gap entirely, meeting my goal, for 64 pips gain. This has prompted me to close the NZD-JPY trade. Also, CAD-JPY position was exited at the same time and was the weakest of those currency pairs, making only 18 pips. All said, not a too bad sequence. Hopefully prevailing conditions will provide for more of these kind of trades in weeks to come.

Out of the buy orders  covered yesterday, breakout in CAD-JPY happened and trade is under way. GBP-CHF is another story. Possible reversal, as sought on 4H chart, didn’t happen. No bullish candlesticks emerged. Price fell  under 1.7160, which is a very important support and has been for a few weeks. Once again, I’m looking for another reversal on the same chart at this level. Clearly buying risks are even smaller at this price, and next couple of candlesticks will decide. Chart will be posted in next update.

Mike K.