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What is Gap in Forex

Author: Patrick Dresdner
Patrick Dresdner
All publications of the author


If you decide to examine the features of Forex market functioning thoroughly, then it will be very useful to know what is the gap. The word that came to us from English language, in all financial markets represents a gap which is observed in the quotes flow.

On the charts it can be clearly seen between two prices - the closure of one candle and the subsequent opening of the second. Visually it is noticeable that they are arranged at a certain mutual removal: this is a gap - situation characterized by the existence of a price jump.

It is important to remember that every trader that seeks to achieve tangible progress in his work, it makes sense to get acquainted with the bound gapped moments, such as:

  • Key Features;
  • the causes;
  • possible consequences.

Also, look into the case of dispute in the trade because of the gap will help Forex broker, who is able to provide all necessary information to any partner.

What is the reason for price breaks?

Practice shows that there are several the most significant reasons why we consider these situations. The following list of the most common ones is below:

  • Most often, such breaks are purely of technical origin - when the flow entering the terminal quotation is not complete. It should be noted that for commercial processes, such gaps do not have a significant impact.
  • Quite often such situations occur on holidays, in the case of the publication of important economic data, as well as in the days when the closing month or year. They can occur in any financial markets - regardless of the specificity of the latter.
  • Also, sometimes the gap can happen within the same session - due to uncertain at first sight causes. Such gaps are random, so take them as a sign of further price changes in one direction or another is not necessary. Typically, these situations are the result of different kinds of unforeseen events which alter market sentiment - such as natural disasters, military coups, major terrorist attacks or man-made disasters.

If a break occurs in a continuous stream and price due to fundamental reasons, you should know that such a gap is reasonable you pay close attention.

We also consider it is necessary to remind you about the importance of Forex trading platforms correct choice - trading terminals, allowing to track all changes in real time and to carry out transactions on the market. These programs should be really reliable, productive and easy to use. As an example, the relevant criteria listed software can cause MetaTrader4, is deservedly popular for over a decade.

Regarding period, depending on the characteristics of the market, it can have a variety of meanings which may affect how you choose a trading strategy. For Forex it is one working week, as the activities it carried out Monday to Friday, without stopping even for an hour. In the case of product markets is equal to the period of one day - as a result of doing business to them only at certain times of the day.

Gaps at the junction of two weeks: Causes and Consequences

As a typical example of the causes leading to the abrupt change in prices can lead a meeting between the representatives of large corporations or financial institutions key world powers, passing over the weekend. If they are official, then follow up with them allows Economic Calendar Forex - tool, which is very important for any trader. These events can lead to a break at the intersection of weeks - from Friday to Monday. We note that such gaps are of greatest interest to the trader and that's why, it makes sense to talk in more details.

Let's say that on Friday you have opened a buy order that has the price of 1.300, putting take profit 1.305 and stop loss 1.298, and at the closing market price fixed at the level of 1.304. What do you expect on Monday in the case if you happen to break?

There are two basic scenarios:

  • Opening of the market, in which the gap goes down. So, if the price will drop to 1,290, your order will be closed by stop-loss - but that value is fixed at the opening. This will lead to the fact that your losses instead of the planned 20 constitute as much as 100 points.
  • Opening with prices jump up. With the growth of final value to 1.309 exhibited TP you work in accordance with the opening price, and the profitability of the operation, instead of the planned 50 points, will be as much as 90.

From this, you need to make a very important conclusion: the gap closes Friday orders on the level, which opens the market, and not in accordance with the exposed SL and TP values.

How one can "fight" with it? Alternatively, on Friday, you can remove the stop loss and take profit, open orders or set their values so that the jump in any case failed to achieve them - for example, at 1,000 points. On Monday, you can return the levels back - up indicators are most appropriate to the situation on the market.

Also note that select the most appropriate technique allows an intermediary through which the trade in the market. Just type in the search query string «How to choose a Forex Broker?» And choose the most suitable one for yourself.

Advantages and Disadvantages

The conclusion from all written above is simple: at the junction gaps weeks may bring you a considerable profit and a decent loss. If on Monday there is a jump in the right direction, then it is an obvious advantage for you, which should be just in time to fix.

Especially, after the gap growth rates for some time continues, allowing you to get more funding. This occurs until the time when the price begins turning on statistics derived from approximately in 7 from 10 such cases.

However, traders often notice that real-time forex charts show the future dynamics of prices for a given direction of the gap. For those who use the medium and long-term strategies, this kind of jackpot - in situations where the positions were opened by them in the right direction.

If the jump occurs against open surgery and does not get to the set value SL, this leads to significant losses for the trader. What is the best thing to do in such cases? Close the position with the resultant loss or hope for a reversal of the price? As practice shows, there is high probability of margin calls - especially if the trader does not have the appropriate level of expertise, allowing to cope with such situations.

Summary

It is important to remember that you will definitely come across with such a phenomenon as GAP in your activities and that's why it is extremely important to learn how to react correctly. This allows both to bear the losses and make good money, based on your own knowledges and the right strategy. As for the latter, now its variations have quite an impressive number. Be sure to read them, because they are able to bring you a lot of tangible benefits.

And, as it was mentioned above, special attention should be paid to selecting the most appropriate agent. Invaluable assistance in this case could have Forex regulators - controlling organization issuing the broker's license. An indicator of the reliability of a mediator is assigned to him the number of points, depending on the level of the regulator issued the permit.

Now that you know exactly what gaps are, watch this expert explain how you can use them in your trading:

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