Ever asked yourself why there are gaps formed on your chart when market opens on Sunday ? well, here in this article I want to explain what are forex weekend gaps, why they are formed of your charts and also how to make money trading the forex weekend gaps
Without wasting any of your time, let’s get started
What Is a weeekend Price Gap?
A forex weekend Gap is an empty space you can see between the Friday candlestick and the Sunday candlestick. The best way to explain it is to show you a chart with gaps on it. The following chart is a daily chart of eurusd which shows several weekend gaps
Take note that gaps can occer anytime, especially on smaller timeframes during major news events. However in this article, I want to focus on the gaps that are formed at the beginning of the week.
What causes the weekend gaps?
It is known by many traders that the currency market opens 24 hours a day from Sunday afternoon at 5pm EST ’till friday 5pm EST. this is true for retail traders like me and you, but it is always open for the central banks and other trading institutions.
whilst the market is closed for retail traders on weekend, other trading institutions will continues to trade behind the scenes. This means that the forex market never closes, not even on weekends or holidays. Currency transactions are always done electronically and can not be stopped that is why when the market opens to the retails traders on Sunday afternoon at 5pm EST, the price has a visible difference compared to the level it was closed on Friday afternoon, thus create the weekend gaps we see on the on Sunday when the currency market opens.
How to trade gaps
One of most known ways to trade the gaps is to trade the close of the gaps; In most cases the market price tend to fill the gaps created on weekend. meaning if the price opens with a gap down , the market price will go up to fill the gap, If the market price opens with a gap up, then it will go down to fill the gap. This is true in many cases, price really do fill the gap and most traders know this and they look forward to trading gaps every sunday.
When the market open with a gap up, traders place a sell trade and wait for the gap to be filled, if the market price open on sunday with a gap down, they place a buy trade and wait for the gap to be filled.
The following chart is a 4 hour chart of gbpusd which shows a clear gap of 180 pips
The following chart is still the same chart of gbpusd which shows a gap after is was filled.
As you can see from the chart above, the gap was filled after 3 days.
This is a great strategy to start your week. However,While you can make a lot of money with this strategy, it does have some pitfalls to be aware of. For one, the gap might be filled, but it might go against the gap for hundreds of pips before it turns and fill up the gap, some gaps take weeks or even months before they can be filled and sometimes it never turns for years. So it becomes a problem when you have to place a stop loss because you don’t know where and when the price might turn.
The weekend gap strategy
Here is another simple but very effective strategy that can make you a lot money whilst the financial markets are closed over the weekend.
It is based on a gap between the close price of last Friday and the existing Monday’s open cost. This strategy basically will make you money while the market is closed for the weekend
This strategy is also based on the weekend gaps that usually occurs when the market or forex market open on sunday.
Currency pairs: any major and manor pairs but this strategy works best with high volatility pairs like gbp/jpy
TIME FRAME: 30 minutes time frame charts (M30)
On Friday 16h45 EST. (15 minutes before the market close for retail traders) login to your trading platform and make sure all yours charts are switched to 30 minutes timeframe.
Focus on the last 3 candlesticks including the current candlestick . All of these 3 candles must me be same in color
If the last 3 candlesticks are bullish, then place a sell trade- Meaning you go against the trand.
The opposite is also true, if the last 3 candlesticks are bearish then you must place a buy trade.
Lost? Don’t worry this strategy is very easy and simple. Let’s look at the below pictures as an examples.
Notice the last 3 candlesticks are bearing or going down (red). In this case you place a buy position
Do not set stop-loss or take profit level because they won’t work.
When market opens on Sunday, it will open with a gap and you should be in profit
Notice the last 3 candlesticks are bullish/ going up ( green).
In this case you place a sell position
When the market opens on Monday it should open with a gap
When an initial week begins check all your positions and close them or let them run. If you don’t know how to let your profit run, then this post will help you learn to let your trades run.
WARNING: If you want to use this strategy, you have to do it at your own risk. Make sure you test the strategy on a demo account to make sure you master it before using it on a live account.
Trading gaps can be very dangerous because even you put 30 pips stop loss you can lose way more than that during weekend gap because stop loss don’t work on gaps. Also, Make sure you stick to position sizing to be in the save side.
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