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As we already know the quotes represented by bar or candle charts provide a more detailed information than a continuous curve prices. A major advantage is the information given in relation to the position of the opening and closing rates of each session, and the scope checked in relation to previous days. Another great advantage is supplied to us by the analysis of the gaps formed in the bar charts. GAPS represent discontinuities in the prices on charts, constituting blanks, ie prices at which level there was no transactions. This discontinuity in prices is caused by the fact that the expectations of either supply or demand are equal. Suddenly, for certain reason, all investors realize that the particular asset price is too low or too high in relation to its real value. It follows that no transaction is made until the price has fallen or risen to more accurate values.
There are different ways to define GAPS, each giving rise to a different type of gap. Also the gaps have different names and meanings, depending on the location where they occur during the price movements. Usually they are divided into two types:
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Olkiss70 avatar
Olkiss70 21 Feb.

excellent article!

llolor avatar
llolor 22 Feb.

Well done

black_box_xx avatar

interesting
good job!
how long have you been writing this article?

Nihad avatar
Nihad 27 Feb.

Good luck buddy

Olkiss70 avatar
Olkiss70 29 Feb.

I often use gaps when trade stocks

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7/35
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Stability in Chaos of EUR/USD Introduction FX markets are inherently unstable. Statisticians often say there are no stationary processes within the market – it is all random. Well, not so much. There are a few things stable in the sea of instability: Instability itself – which is great as this provides the opportunity to profitLiquidity Gaps – those are sharp movements down or up the price Let’s first look at what the liquidity gaps are in my definition and in my quantitative research. Liquidity gaps are sharp movements up or down the price on EUR/USD as is seen on a 10-minute timeframe. Sharp movements are one-directional movements larger than 11 pips in spread (absolute difference between Open Price and Close Price on a 10-minute price bar) with Open Price and Close Price deviating not more than 3 pips from the respective High and Low of the same bar. Visually, the liquidity gaps on a 10-minute time frame on EUR/USD will look similar to this: Image 1: Regular Mid-Size Liquidity Gap on Regular Trading Volume Without News Now the interesting fact is: 95% of those gaps (excluding news and extreme volume) will close within 3 trading days. The research has been based exclusive…
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SpecialFX avatar
SpecialFX 29 Jan.

Very interesting study, but what kind of stop-loss do you use with such a strategy? It must be pretty wide, if you are expecting the price to eventually reverse within 3 days? :)

Vasyl avatar
Vasyl 29 Jan.

thanks quadro

Vasyl avatar
Vasyl 29 Jan.

SpecialFX - that is what I mean - if you do trend following on big volume, it is less risky. And deciding when to short - is something I would like to improve myself - definitely too dangerous on high leverage. Right now the short one is to 1.3175 from 1.3460, so the liquidity drawdown is around 300 pip

imaddima avatar
imaddima 20 Mar.

very good article

MuhammadAdil avatar

I learned this approach a few days back from a webinar recording of Chris Lori. Nobrainertrades also described this theory very well. Nice article. I think this approach of liquidity gap trading should be talked about more on how to trade this phenomenon of market.

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16/48
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The vehicle you choose to trade for intra day trading depends on your execution platform, your commission structure, trading rules and your objectives.Most Professional Traders will choose to trade a very volatile and liquid market, that’s why more and more of the Stock Jockeys move over to the Forex Market.Let start and jump into the deep end.Below I have two Charts of the recent EURUSD that opened with a gap a couple of weeks ago.  Fig 1 Show the trend we are in and give and indication which direction to trade in.Note: I do not use the 1hr chart to plot my trading strategy – merely to find the direction of the trend. Fig 2 We use the 15min chart to find the divergence of the gap. However the 1hr and 4hr charts can be used as well – but since we are trading a gap for a short period - and maximum profit, best to stick to the 15min charts for the analysis and the entry points.On the other hand the 30 min or 1hr chart are used to find the exit points – in this case we will look for pattern reversals i.e. hammers, tweezers, spinning tops etc.Fig. 1Fig. 2Entry PointsAs a Professional Intraday Trader we trade Breakouts and Pull Backs after the breakout.These are simple rules that will…
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lkubanek avatar
lkubanek 19 June

I cant agree with everything, but some points are nice

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17/108
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Over the last several weeks we have seen frequent gaps en excess of 30 pips on the open of the EUR/USD Sunday candle (Monday in Asia-Pacific trading).Although traders are well aware that price tends to try to close a gap, many have also found the gap trade to be illusive and an overall negative to their P/L.So how do we profit from the gap trade?No surprisingly, the answer is:  by studying and acting on past price behavior.In my case, this meant going back at least two years and studying the gaps ie. reviewing the size of the gap, the drawdown before closing the gap, etcAfter having analyzed several variables, I came to the follow conclusion:Assumption 1: Gap is minimum 20 pips at 5 p.m. ET on Sunday openAssumption 2: Your stop loss is always 2 times the size of the gap.Assumption 3: Your take profit is always the closing price of Friday's candleAssumption 4: You open the trade at 5 p.m. ET on Sunday.Result: Your take profit will get hit 85% of the times.It doesn't take a math wizard to figure out that over time this will add up to profits. It is not a tremendously profitable system - afterall we need 2 winners to compensate for each loss- but the statistics are quite reliable give…
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petefader avatar
petefader 10 Oct.

Interesting, I was always want to trade the gaps but too many time it fails. Can't hold the draw-down waiting for it to close though. Interesting strategy +1

ritesh avatar
ritesh 12 Oct.

Nicely written, quite detailed and informative article. Nice on bro, GAP Trading is fun and easy, really... keep more coming. Best of luck and +1

Milani avatar
Milani 26 Oct.

I agree

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4/94
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I chase rainbows, butterflies, flying kitties and big rabbits and I know that I'm going to fall but I can't help as I love it.Following me down said to me a talking toobigtofall rabbit and it popped into a hole. I followed through never once thinking how the hell I'll get out again. It was a Monday morning just another start to another week turning on my numerous screens (as an old saying goes more screens you have more money you make) and logging into my forex account all charts where showing me the same thing: A BIG HOLE! A WIDE AND DEEP GAP going from the last candle of Friday and the first candle of the week. What the toobigtofall rodent did during the weekend? When all are sleeping it's digging holes clearing stops and piling money? That's not fair! Can you not make money as everybody else around here?! During normal trading hours?! I'm making money man! What did you think? You are chasing kitty I chase...I chase chase trades.Ok you got me! But I have learned an old trick from my old pal cat. I'm gonna play you! Oh you'll see! You'll see!Let's start with a bit of annoying theory first (you can skip this part as this material is not examinable). Forex gaps occur when on any cur…
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duk_amjilt avatar
duk_amjilt 24 Sep.

thanks good luck +1

nadita2011 avatar
nadita2011 25 Sep.

keep this way! +1

gubarev avatar
gubarev 26 Sep.

Good job man:) was helpful for me)

mohands_moslim avatar

goodluck bro ?>> +1

noseypip avatar
noseypip 29 Sep.

nice one, thanks 4 ur message, best wishes++

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