Forex Gap Trading Strategy

Forex Gap Trading Strategy — is an interesting trading strategy that utilizes one of the most disturbing phenomena of the current Forex market — a weekly gap between the last Friday’s close price and the current Monday’s open price. The gap originates because the interbank currency market continues reacting to the fundamental news during the weekend, opening on Monday at the chart level with the most liquidity. The offered strategy assumes that the gap results from speculations and excess volatility; thus, an open position in the opposite chart direction should probably become very profitable after a few days.

Forex Gap Trading Strategy Features

• Regular trading with clear rules.
• No stop-loss hunting or premature hits.
• Statistically proven profit.
• You have to open the position at the week’s start and close it right before the end.

How to Trade?

1. Select an mt4 currency pair with a relatively high level of volatility. We recommend GBP/JPY pair as it showed the best results during my tests. But other JPY-based pairs should work too. By the way, it’s an excellent strategy to use on all major currency pairs simultaneously.
2. When a new trading week starts, look if there is a good gap. A gap should be at least five times the average spread for the pair. Otherwise, it can’t be considered an actual signal.
3. If Mondays (or late Sundays if you trade from North or South America) open below the Fridays (or early Saturdays if you trade from Oceania or Eastern Asia) close, the market gap is negative, and you can open a Long buy position.
4. If Monday’s open is above Friday’s close, the gap is positive, and you can open a Short position.
5. Don’t set a stop-loss(SL) or a take-profit level (it’s a rare occasion, but stop-loss isn’t recommended in this strategy).
6. It would be best if you closed the position before the end of the weekly forex trading session (e.g., 5 min before the end).

Example

You can see the GBP/JPY pair’s last seven weeks (as of May 24, 2010), all of which have gaps. 6 out of 7 gaps give correct entry signals, resulting in a lot of profit. The last gap gives a wrong entry signal and yields a medium loss. The average spread for GBP/JPY was three pips during the example period, and all market gaps were much wider than 15 chart pips, making them all qualifying entry signals. The total net profit was 1,613 pips in 7 weeks — not that bad.

Warning!

Use this forex strategy at your own risk. fxcracked.com can’t be responsible for any losses associated with using any forex strategy presented on the site. Using this forex strategy on the real account is not recommended without testing it on the mt4 demo.

Discussion:

Do you have anymore suggestions or questions regarding this strategy? You can always discuss Forex Gap Strategy with fellow Forex traders on the Trading Systems and Strategies forum.