I could not stop laughing when I read that one
of the Dukascopy expert committee members joked “We’re looking forward to
possible sequels, like Trading Inside Sushi-restaurants and Trading Out in the
Wild ” while evaluating my last month's article on “trading inside bars”. 



Adding to the humor, I can say, there are
“Bar“ traders  ...there are “be (a) er”
traders and there are amateur’s who start with trading and always end up in
"bars"!.

Before I could start this week’s topic, I would
like to reflect back on the results of my Last month’s article.i.e: “Trading
Inside Bars”. One would have racked up loads of pips with this strategy. Just attaching
some charts to depict the power of Inside bars.



 EU - weekly



AU - Daily

GU - Daily


USD/JPY -  Daily

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Let's move on to this week's topic...



Introduction



Some of the questions and dilemma that a trader
goes through on a routine basis are



 1. How to judge the strength of the trend?



2. When to use maximum leverage?



3. When to open the position?



4. When to close the position?



5. What should be the position sizing?



6. Where should be the stop?



7. How to trail the stops?



8. When to exit?



Indeed, no one can answer all of the above questions. Neither it
is possible. In my effort to answer at least few of them, I have already
discussed 2 strategies in my previous articles. This week, I am going to
discuss one more wonderful strategy. With proper practice, it may help you to
make a lifetime trade one or the other day in your trading career.



Core belief:



A trend is like a tsunami. If one is with it, it
can make him/her highly rich. If one is against it, it can destroy his/her
trading account in no time. Most of beginners lose out just because they go
for fishing in the mud water. To trade the markets successfully, we need to
have separate methods/strategies and mindset for trend and ranging
markets respectively. A trader's first job, before taking a trade, is to judge
whether the market is in trend or in range. To do that he needs to have have the tools so that he is able to take the full advantage of the leverage available
to him and thereby size his position appropriately to take the most out of what
market has to offer. 



The strategy that I am going to discuss is
" Gap in the trend "…………..It is one of the concept which I have learnt
during my learning phase of trading career and also I have reaped plenty
of benefit out of this strategy. This strategy is all about....



1. Judging the strength of the dominant trend, 



2. Taking full advantage of leverage and



3. Sizing the position at appropriate levels.



Risk and reliability



Since this strategy is applied in the direction
of the dominant trend, the risk remains less whereas reliability remains
high. 



Now coming to trend......Any trend can be of 3
types.



 1. Crawling trend,



 2. Normal trend and



 3. Super trend.

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1. Crawling trend:



In a crawling trend, the price retraces beyond
breakout/retest level and then resumes its original direction.



Exa: In the illustration below, EU breaks down a
major swing low at 1.3000 .Then price retraces back beyond this breakout level and reaches 1.3030 and then resumes its original direction. 


2. Normal trend.



In a normal trend, the price retraces back only
till last major breakout level or retest level and then starts its original
direction. If we take the same example as above , The
breakout took place at 1.3000 and now the price retraces back only till
1.3000. After retest at that level, resumes its original direction ( Down trend ).



In other words in a normal trend, there is always
a retest of last breakout level.



 

3. Super trend: 



That's what we are going to discuss in this
article. ..In a super trend, the
price resumes its original direction before reaching the last breakout or retest level
.
Taking the Same example…Once the price breaks 1.3000 at point "A”, price
never comes back for retest of the breakout level after making a swing low at point
"D". It reaches only up to 1.2950 thereby creating a gap of 50 pips
between the last swing low and current swing high i.e.: between Point
"A" and point "E". We call that as TREND GAP .This phenomena of price gap or non retest of last breakout level
indicates the strength of the prevailing trend. In this case, the downtrend.

 Let’s see how I design my trades with
planned entry, stop, target and exits.



Entry: 



We place an advance order just below swing low
created before the gap. In this case just below swing low "D" i.e.:
at point “F”.



 Stop:



Stop is just above the swing high which results
in the creation of gap. In this case the stop is at just above point "E".



Target:



As per my research, observation and experience,
in majority of the cases, the price invariably reaches at least double the
length of the gap. To understand it in simple words…. If the gap is of 50 pips,
then our target will be 100 pips.



Considering that we use high leverage under this
strategy, we cover 40% of our positions at 1:1 R: R and 40% at 1:2, double the
length of the gap and rest 20% can be trailed as per one’s own psyche and
risk appetite or any other methods as may be appropriate.

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Here are the live examples......

EU - H4


EU - H1: This one
is the latest example ....it took place on last Friday.

AU - H1


AU-H1

AU-H1...I call this type of trend as "furious trend”
which goes at a crashing speed and creates 3 gaps one after another!


USD- NOK -H1

EU- 15 Min: The gap can be traded on all the time frames.

EUR/CHF - H4: This Article will not be complete without an example
involving a Swiss! Here also we had 2 continuous gaps providing the
trader to make enough money.

Conclusion: 



1. It is a trending strategy and hence can be
applied when trend is in place.



2. One has to strictly adhere to money
management rules as we use high leverage under this strategy.



3. Higher the time frame, better will be the
results.



4. Spotting the gap is not difficult but always
requires practice.



5. One should be flexible while taking the
profit. At least major portion of the profit on table should be taken as soon
as the weakness in the trend is sensed, even if the target is not reached.



6. Always apply this strategy in the direction
of the trend.


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