Capture weekend opportunities and make profits with easy access

Snap weekend opportunities and make profits easily using gaps

In the foreign exchange market, gaps occur from time to time, which is not only part of market volatility, but also provides traders with unique trading opportunities. The foreign exchange gap strategy is a strategy that uses the difference between last Friday’s closing price and the current Monday’s opening price based on this price gap. So, how did the phenomenon of space gap occur?

The gap itself originated during the weekend. Although the interbank currency market was closed, fundamental news continued to ferment, causing the market to react quickly at the highest liquidity price when the market opened on Monday. This price discontinuity is a gap phenomenon. The emergence of this phenomenon often provides an opportunity for the implementation of foreign exchange gap strategies.

This strategy is mainly based on a core assumption that gaps are often the result of market overreaction or speculative sentiment. Therefore, establishing positions in the opposite direction of gaps can potentially capture market pullbacks or reversals within a few days to make a profit.

How to trade using a gap strategy?

1. Choose currency pairs: Priority is given to currency pairs with higher volatility, such as GBP/JPY, because they are sensitive to market news. Of course, other JPY-based currency pairs and mainstream currency pairs are also good choices.

2. Confirm the gap occurs: When the new week opens, immediately check whether the selected currency pair has a gap.

3. Judge the gap amplitude: The gap amplitude should be at least 5 times the average spread of the currency pair to ensure the reliability of the signal.

4. Determine the transaction direction:

If the opening price on Monday is lower than the closing price on Friday (taking into account time zone differences), the gap is negative and a long position should be established.

On the contrary, if the opening price on Monday is higher than the closing price on Friday and the gap is positive, a short position should be established.

1. Risk Management: Although it is not recommended to set a stop loss, be sure to understand and accept the risks that this strategy may bring. Consider using some positions to reduce risk exposure.

2. Close the position: Before the end of this week’s trading period (such as 5 minutes before the end), close the established position regardless of profit or loss.

Features of the gap strategy

• The rules are clear: Use clear rules to conduct regular trading to reduce subjective judgments.

• Avoid stop loss hunting: The gaping strategy usually does not trigger the stop loss immediately, reducing the risk of premature exit.

• Statistical Advantages: Historical data show that this strategy has certain statistical profitability.

• Strong cyclicality: establish a position at the beginning of each week and end the trading within this week, suitable for investors who like short-term trading.

While the forex gap strategy seems simple and tempting, all transactions are risky. Market uncertainty and emergencies may affect the effectiveness of the strategy at any time. Therefore, before using the gap strategy, sufficient market analysis is still necessary and a reasonable risk management plan is formulated.