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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