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Gapup

How to Trade Gap Up and Gap Down Opening? Full Guide What is gap up and gap down in trading? In this article, I will teach you how to trade gap up and gap down opening . You will learn a simple and profitable gap trading strategy that works perfectly on Forex, Gold or any other financial market. First, let's start with a theory . A gap up after the market opening is the situation when the market opens higher than it was closed without any trading activity in between. Above you can see the example a gap up after the market opening on EURGBP. The price level where the market closed is called gap opening level. The price level where the market opened is galled gap closing level. A gap down after the market opening is the situation when the market opens lower than it was closed without trading activity in between. Here is the example of a gap down after the market opening on WTI Crude Oil. Why such gaps occur? There are various reasons why opening gaps occur. One of the most common one is the release of positive or negative news while the market was closed. The market opening price will reflect the impact of such news, causing a formation of the gap. What gap opening means? Gap openings reflect the sudden change in the market sentiment. Gap up will indicate a very bullish sentiment on the market while a gap down will imply very bearish mood of the market participants. However, the markets do not like the gaps. With a very high probability, the gaps are always filled by the market very soon. We say that the gap is filled, when the price returns to the gap opening level. Above, you can see that after some time, EURGBP successfully closed the gap - returned to gap opening level. Such a pattern is very reliable and consistent among different financial markets. For that reason, it can provide profitable trading opportunities for us. You can see that a gap down on WTI Crude Oil was quickly filled and the price returned to the gap opening level. How to trade gap opening? Gap Up Trading Strategy Once you spotted a gap up after the market opening, you should wait for a bearish signal before you sell. You should look for a sign of strength of the sellers. One of the most accurate signals is a formation of a bearish price action pattern: Double top, Triple top, Inverted Cup and Handle, Head and Shoulders, Symmetrical or Descending Triangle, Rising Wedge... Bearish breakout of a trend line / neckline of the pattern will be your signal to sell. Look at a price action on EURGBP before it filled the gap. At some moment, the price formed a double top pattern and broke its neckline. That is our signal to sell. Your stop loss should lie above the highs of the pattern. Take profit - gap opening level. Safest entry is on a retest of a broken neckline/trend line of the pattern. Safest entry point on EURGBP is the retest of a broken neckline of a double top pattern. Stop is lying above its highs. TP - gap opening level. Gap Down Trading Strategy Once you spotted a gap down after the market opening, you should wait for a bullish signal before you sell. You should look for a sign of strength of the buyers. One of the most accurate signals is a formation of a bullish price action pattern: Double bottom, Triple bottom, Cup and Handle, Inverted Head and Shoulders, Symmetrical or Ascending Triangle, Rising Wedge... Bullish breakout of a trend line / neckline of the pattern will be your signal to buy . Let's study the price action on WTI Crude Oil before it filled the gap. You can see that the price formed a cup and handle pattern. Bullish breakout of its neckline is a strong bullish signal. Safest entry is on a retest of a broken neckline/trend line of the pattern. Your stop loss should lie above the lows of the pattern. Take profit - gap opening level. Following this strategy, a nice profit was made. Always remember that probabilities that the gap will be filled are very high. However, it is not clear WHEN exactly it will happen. For that reason, you should carefully analyze a price action and wait for a signal, before you open the trade. That will be your best gap opening trading strategy. ❤️Please, support my work with like, thank you!❤️
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Education
by VasilyTrader
10
Exploring Forex Trading's Price Gaps: Opportunities and RisksWithin the realm of forex trading, price gaps emerge as a frequent and remarkable occurrence, distinguished by substantial disparities between an asset's closing and opening prices. These gaps materialize due to an array of factors, encompassing shifts in investor sentiment, alterations in market liquidity, and the dissemination of consequential news. Acquiring a comprehensive understanding of the diverse types of price gaps, their underlying causes, and the implications they carry assumes paramount importance for traders aiming to effectively exploit these market opportunities while astutely managing the associated risks. Price gaps come into existence when a discernible void arises between an asset's closing price on one trading day and its subsequent opening price on the following day. These gaps manifest in a variety of forms, each embodying distinctive characteristics and wielding implications for traders. Among the common types of price gaps are breakaway gaps, runaway gaps (also referred to as continuation gaps), and exhaustion gaps. Breakaway gaps frequently manifest subsequent to a period of consolidation or a significant market event. These gaps act as a signal of potential trend alterations, offering traders opportunities to establish new positions in alignment with the emerging market direction. Runaway gaps, conversely, arise within an established trend, reinforcing its continuity. They serve as a testament to surging market momentum, often propelled by fresh developments or an influx of trading activity. For traders who have already positioned themselves in line with the prevailing trend, runaway gaps provide affirmation and the potential for further profits. Exhaustion gaps surface towards the conclusion of a trend, heralding a prospective reversal or temporary pause in the prevailing market sentiment. These gaps are frequently accompanied by dwindling trading volume, serving as a cautious indication for traders to reassess their positions and adapt their strategies accordingly. Comprehending the causative factors behind price gaps is indispensable for traders seeking to decipher their significance and seize potential opportunities. Price gaps can arise due to sudden shifts in investor sentiment prompted by news releases, economic indicators, or geopolitical events. Moreover, market liquidity discrepancies, particularly during periods of low trading activity like weekends or holidays, can contribute to the occurrence of gaps. Traders must meticulously evaluate the implications of price gaps and remain cognizant of the associated risks. While gaps can furnish lucrative opportunities, they also entail potential challenges. Swift price movements during gap openings can lead to slippage, wherein executed orders are filled at prices significantly divergent from the intended entry or exit levels. Additionally, the scarcity of liquidity during gap periods can yield widened spreads, underscoring the importance of deploying appropriate risk management techniques. To adeptly navigate price gaps, traders can employ an array of strategies. These may encompass the utilization of gap trading techniques that harness the initial price movement following a gap, or adopting a more cautious approach that awaits confirmation of the market's response before entering a trade. Furthermore, implementing stop-loss orders and trailing stops can help mitigate risks associated with adverse price movements. Do Gaps Always Close? The closure of gaps in trading is not guaranteed, but statistical data suggests that gaps are closed at least 70% of the time, particularly when looking at weekly gaps. However, it's important to note that not all assets reach such closure levels. Among currency pairs, EUR/JPY, GBP/EUR, and GBP/JPY tend to exhibit a higher tendency to compensate for price gaps. Exhaustion gaps are generally considered the most reliable for closure trades. When attempting to forecast gap closure, it is advisable to analyze the technical chart patterns alongside the fundamental background. If there is a divergence between these factors, it may be wise to exercise caution and refrain from engaging in active trading. In such cases, it is recommended to rely on the forecasts of other instruments to shape the overall trading outlook. Gaps can pose risks for traders in certain situations: 1) Small trading deposits: If a trader is operating with a limited deposit that does not allow for position insurance when faced with significant and unfavorable price gaps, it can be risky. Insufficient funds to cover potential losses from a large gap can result in substantial financial consequences. 2) Lack of proper risk management: If a trader fails to set appropriate stop-loss levels or neglects to place them at all, particularly when holding positions over the weekend where gaps commonly occur, it can leave them exposed to significant losses if the market moves against their forecast. 3) Random price gaps in low time frames: Gaps that appear sporadically in lower time frames can be misleading and confusing. To avoid making impulsive decisions based on such signals, it is important to synchronize the analysis with fundamental events and consider incorporating technical indicators into the trading strategy. Traders who pursue short-term trading with small profit goals are particularly susceptible to the risks associated with price gaps. Even a small gap can lead to losses for this category of traders, as their profit margins may be narrow. In contrast, mid-term and long-term traders typically have less concern about the impact of gaps. Their trading strategies aim for larger profit targets, often spanning hundreds or thousands of points, where the impact of a single gap of a few tens of points is relatively insignificant. Using Price Gaps In Trading Practice: Price gaps can be utilized in trading practice using market and pending orders to take advantage of potential opportunities. Considerations such as the probability of closure, gap size, and time frame are taken into account. For instance, in a 30-minute time frame, if a price gap of at least 20 points is observed at the market opening, the price tends to move within the gap for the first half-hour due to inertia. In the case of a bullish gap, a market order to buy can be placed, while the Take Profit level can be determined using additional analysis tools. Similarly, for a bearish gap, a sell order can be activated. If a gap appears against the prevailing trend, the likelihood of the gap closing increases. In such scenarios, pending orders like Buy Stop for an uptrend or Sell Limit for a downtrend can be effective. One of the challenges is setting an appropriate Stop Loss. Take Profit levels can be adjusted, considering factors such as the Friday closing level, slightly above it, or at local peaks (maximum or minimum) observed on Friday. It is crucial to exercise caution and consider risk management techniques when trading based on price gaps. Traders should thoroughly analyze market conditions, employ suitable order types, and carefully determine their entry and exit levels to optimize trading outcomes. In conclusion , price gaps in forex trading serve as important indicators of market dynamics and present potential opportunities for traders. By analyzing the type of gap, incorporating support and resistance levels, and utilizing technical indicators and candlestick patterns, traders can make informed decisions to capitalize on these market phenomena. It's essential to note that gaps do not always close, and traders should be mindful of this fact. To enhance trading strategies, it is beneficial to align technical analysis with fundamental factors and consider the broader market context. Caution should be exercised, especially when trading with smaller deposits and during periods of increased market volatility, in order to manage the risks associated with price gaps effectively. By incorporating thorough analysis and risk management techniques, traders can navigate price gaps with greater confidence and optimize their trading outcomes.
Education
by FOREXN1
10
📊 Liquidity Gaps CheatsheetIn volatile markets, traders can benefit from large jumps in asset prices if they can be turned into opportunities. Gaps are areas on a chart where the price of a stock (or another financial instrument) moves sharply up or down, with little or no trading in between. As a result, the asset’s chart shows a gap in the normal price pattern. The enterprising trader can interpret and exploit these gaps for profit. 📌 What is a gap? A gap occurs when the price of a security moves quickly through a price level, either up or down, with little trading or pricing available over that time span. 📌 How they are formed Gaps can be caused by several factors, but they are mostly seen as a result of unexpected news or a technical breach of support or resistance. 🔹 On the fundamental side , the news could be a company beating earnings estimates by a large margin, or a speech by a Federal Reserve (Fed) official impacting interest rate expectations. 🔹 On the technical side, gaps can ensue following the break of a prior high/low, or other form of technical resistance or support, such as a key trend line. 💥 Key Takeaways About GAPS 🔹 Gaps are spaces on a chart that emerge when the price of the financial instrument significantly changes, with little or no trading in between. 🔹 Gaps can occur unexpectedly as the perceived value of the investment changes, due to underlying fundamental or technical factors, such as an earnings disappointment. 🔹 Gaps are classified as breakaway, exhaustion, common, or continuation, based on when they occur in a price pattern and what they signal. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Education
by QuantVue
3
Trade so easy with FAIR VALUE GAPS!Hello trader, you look great today! I have a useful trading tool to offer you. If you are experiencing positive feelings towards me, please consider following me and helping to increase my exposure. FAIR VOLUE GAP First, go to tradingview and search up Fair Volue Gap . Now, you can see your chart dashed lines, to see levels based on these pages. FVG and to make this set up a lot better though we want to clean this up and only show significant Fair Volue Gaps by going into the settings and selecting the auto threshold. What this does is allows the indicator to detect the average best size of each Fair Value Gap to filter out insignificant ones.
OANDA:XAUUSDEducation
by Sphyn-Trader
5
Position & Swing Trading: Weekly ChartsIf you're position or swing trading, it is a MUST to study weekly charts to confirm: 1. IF a bottom is developing 2. WHERE the bottom will complete ...to plan trades with strong reward/risk ratios. For example, let's take a look at EGLX, which had a gap up at open on its earnings release: 1. Note that today's gap up is from a lower low in the downtrend. This particular bottom is not confirmed just yet. When it makes a higher low is when there will be lower risk for an entry. 2. The first resistance is at 3.27, but there's stronger resistance at 4.44--once the stock's price sustains that level, then the bottom will be complete, which is the best time to consider position trade entries. Both resistance levels should be considered for swing trading potential... First ask: "Are there enough points to gain from your entry point to warrant the risk of the trade?" If no, then move on to the next opportunity; maybe put an alert at the next resistance level to revisit. If yes, then which resistance levels are likely to cause profit-taking? A step-by-step checklist that looks further than the entry is important for not giving back profits just as soon as you make them. Learn more at my website.
EEducation
by MarthaStokesCMT-TechniTrader
Anatomy of a Day Trade: Entrances and ExitsO FGS! Dammit! They gapped it up overnight, what should I do?!? Well what gap is this? Three weeks ago we had Initiation Gap: These often do not fill, don't short them! It's suicide, lol! This has hallmarks of an Exhaustion Gap; it will fill intra-day or within a few sessions at most... a great short opportunity! See my related post on gaps FYI. But, when should you enter?! If you foolishly short it at the open be prepared to wait for hours and watch your position dwindle... ow!! Should you buy calls at the open?! Maybe it will run higher?! Of course it CAN, but it can also run lower and gapfill quickly, within minutes. A long position taken first thing is high risk... as are early shorts! So, when can you enter a position with reasonable expectation of profit?! In fact, ANY position taken in the first 20 minutes of the trading day is very high risk, I do not like to open new positions right away! So, you Watch and Wait! Looking for opportunity... in the first hour price ran higher and calls had been profitable, but we didn't take a position with no signal, we like good Risk/Reward positions with clear signals, not gambling on the opening price. After what seems like an eternity, price begins to consolidate and gives us several warning signals, first a pinbar appears, with a needle doji and tall wick followed by a red candle, a bearish signal; two spinning tops follow, but price clings to the opening price support line tenaciously as the bulls struggle to push higher... finally the price breaks below the support from the opening gap. This was the price support that market enjoyed from the open, as buy order imbalance filled, RSI weakens and money flow decreases until... price breaks under the opening price, signaling downtrend moving towards the gap. Notice how RSI moves from overbought, signaling weakness? This is a short entry high R/R position. You can buy daily puts here with confidence they will increase in value rapidly and immediately. You do not want to get stuck holding these dreadful instruments more than half an hour, you can see the value drain out as expiration nears! Well we see the gap filled, not completely to yesterday's closing price, but it sold down to former resistance at the high prices from last session. This often is all you get on a fill, it won't always close precisely! Sometimes price will dip below the gap and go negative for a few minutes. When the gap fills, you close position, we can't afford to gamble on whether it's gonna get lower or not... Suddenly an impulsive bright green candle appears! Gosh I hope you sold those puts! Notice how RSI has moved nearly to oversold? It's gonna bounce!! NOW is the time we make the best money. This was the candle we saw on 7 October, pullback ran to 13 October; another one appeared on Fed day at 2PM, pullback was just minutes then it bulled up and up... these are the money makers! Learn to recognize this chart pattern and you WILL make money on option trades. You can take a moderate sized position here, I like to trade lots of ten, when I see this candle I'm gonna start with 20-40 calls depending on cost, and add more as price moves in favor. I do not like to add when price moves away! USUALLY Dollar-Cost Averaging in options just leads to magnified losses!! The more you take the greater the loss you might experience, remember when you enter an option trade you assume the total risk for premium paid, a sudden price change can wipe out your position before you can even set up the closing trade. So risk what you are willing to lose, and no more. After the first impulsive move, a retracement nearly always pulls price back to ~2/3 of the impulse height. Here you draw the fib extension to get your target price projection; Fib Extension tool has three buttons, first at bottom of green candle, second at top, and third at bottom of the retracement. Chart your fibo and target the 1.618 extension, this is where your calls will take you! They might take you farther, but that involves more hand-wringing, nail-biting and screen cursing while you wait and watch the time value run down! Do not hold these any longer than necessary! So there were TWO good R/R day trades in Friday's session on 11/5. A short, and the subsequent long. You could have taken other positions, but R/R would be poor, most 'trades' without signals are just gambling. Be a trader not a gambler! Most of the time you want to stay OUT of the market! Look, today's trades involved about two half-hours out of a 6.5 hour session! The rest was just noise and risk. Notably, in 'Power Hour' at EOD, there was not enough bullish energy to lift price back to HOTD... this is Bearish, in a long bull run Fridays typically close at HOTD and short-covering rallies into close are typical, we didn't get that today and daily calls ran down to expiration worthlessly. You might consider taking a longer-term short in weekly or monthly contracts, to catch a move MOnday if the price weakness persists and a gap down follows the exhaustion gap up... if you dare. Remember Buffet's rules of trading: 1) Never Lose Money. 2) Never break Rule 1. Hopefully this post will be of some value of increasing clarity in trading. When you're in the market watching the numbers flicker it is so easy to get lost and miss the forest for the trees... Get ready for some amazing trades as this parabola rolls over and the cascade ensues... always exciting!!
TVC:SPXEducation
by DaddySawbucks
7
The Gap Up (1)Stock price has a gap up, how to confirm it is a true break out or a false break out? Maybe a tight consolidation is a method. Tips: This is forex, not a stock. But the tips should apply as well. Before the gap 2017 May, there were several times the price tried to challenge the resistance line. Once gap up, a false break out then followed by a tight consolidation, can say the resistance became support. After the consolidation, price broke out using a way called red three soldier.Then the second break out can be treated as buy hint.
Education
by yunwangvvv
Woah! This thing identifies SPY gappers!So previously, I released an indicator called "Bunch of Numbers", believing that it was pretty useless. BUT guess what? It turns out that SPY gappers (up and down) have pretty similar sequence of numbers. WARNING: these same numbers have also caused SPY to gap down!! A "Bart" pattern with these numbers at the end will almost always be a gap down. My methodology: 1) 3 minute chart 2) has to be within 15 minutes of close. Some of these only appear in the last 3 minutes of close. 3) 7's at the bottom of the screen signify that price is touching the 200MA on the 3minute chart. 4) There is no logic or reason behind why a number is labeled "9" instead of "5". It's just a label that the programming gave to a set of conditions. I could have easily labeled these candles with the alphabet 5) Like I said, these same numbers have been known to also GAP DOWN><
AMEX:SPYEducation
by ZombieStar
2