Trading the Gap in Forex

As with many things in life, we need to take some risks. Making money in forex is no different however, we need to be smart about the risks we take. If you knew about a simple forex trading strategy you could use time and time again that had a success rate of nearly 85%, would you take it? Any trader knows that this is a no brainer. Of course we would take those odds because over time, we would be very, very profitable.

One such forex trading strategy is known as "Trading the Gap" and it has proved to be nice way to capitalize on a condition that happens very often in the forex market. This especially holds true in volatile markets and if you've watched the financial markets recently, you know what market volatility is.

Trading the gap in forex means we want to take advantage of the "gap in price" from the market close from the previous days session and the market open price of the next day. Since the forex market is traded 24 hours a day, the time to take advantages in price gaps would be when the markets open on Sunday night. We would look for a price gap between market close on Friday and market open on Sunday. If there is a noticeable gap in price, we want to trade it and take the appropriate position be it long or short.

When trading the price gap, you need to think a little differently. The logic here would be if the price has an "up gap", you would sell the currency pair and if the price has a "down gap", you would buy the currency pair. The idea is that the gap will be filled most of the time and this is the condition we're taking advantage of. If you open any forex trading platform and look thru past trading sessions, look back over the Friday market closes and the Sunday market opens. When you see the price gaps, note how many times these gaps get filled. It happens more often than not and those are the odds we need to be successful and profitable traders.

Another important point to make is to get yourself a forex broker that allows you to trade when the markets open on Sunday nights. Some forex brokers will not allow you trade until later on in the evening and by then, the price gap could be filled and you will have missed the opportunity.

Trading the gap is one of many forex trading strategies we can employ when trading the market. Since these gaps don't happen every day, we need more trading strategies in our toolboxes, but having this one in our arsenal, is a nice way to make some additional profits trading forex.

Andrew Daigle owns and operates many popular websites including ForexBoost, a free forex education website to learn Forex trading strategies.

This article was published on 26 Aug 2011 and has been viewed 1467 times
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