But we will have a gap down if it opens lower than the Friday afternoon price. Trading Forex at the weekend gaps is very familiar to forex traders. It is a very often use strategy. Why is that? Yes, trading ends on Friday and can be opened on Sunday evening. But so many things can influence the currency price movement over the weekend. So, when traders are trading at weekend gaps, they are expecting the opening price will hit the closing price.

The gap traders believe that the price will continually fulfill the gap. In fact, it constantly does. Some gaps are tradable some are not. The price frequently develops out of the consolidation phase. Moves up or down with powerful momentum. What leave behind is the gap. Some crucial, breaking events may cause movement. Breakaway gaps happen at the end of the price pattern. They indicate that the new trend is starting.

Exhaustion gap occurs close to the end of a price pattern. It indicates a definitive try to reach new highs or lows. Usually, it comes after a sudden move. It has an unnatural rise in volume and then turns strongly. Also, you have to know that it comes after some news or reports. For example, after the earnings announcement. That is the period when trading activity increase. Traders are closing their big positions.

That causes an obvious reversal. You can find the exhaustion gaps no matter if it is an up or down trend. We can use this to establish whether the gap can be traded when the market opens on Sunday. Next think about how big the gap has to be for you to take a position. A 1 percent gap would mean the price opens up at approximately Tweak the percentage size in line with your risk appetite.

When the Tokyo market opens at 7 pm EST on Sunday, enter a trade if the open is at least So, if the market opening gaps up to Alternatively, if the market opens at You want to keep the trade open until the gap fills or your chart suggests the gap is going to keep growing. Gaps are often filled and it can happen for a number of reasons:.

When a gap is filled within a single trading day, it is referred to as fading. Fading is not applicable to weekend trading as it takes place over a longer period, but it is commonly used by those trading overnight gaps so it is worth understanding what it means.

you do not correctly anticipate the directional price movement. The longer the markets are closed, the greater the associated risks. Trading an overnight gap has a lower level of risk vs trading the weekend gap for example. This is because price fluctuations tend to be less extreme. That is not to say that the risks should be underestimated. Traders should bear in mind that slippage can occur when trading the weekend gap, opening themselves up to the risk of losing more than their initial investment.

There are a few things it is worth keeping in mind when trading the weekend gap in the forex market:. More investors are forex trading over the weekend. With additional hours to trade, many see the profit potential, with the gap trading strategy proving particularly popular. But before you start trading, make sure you have a reliable online broker and a strategy that reflects the weekend market environment. Yes — forex trading is possible over the weekend.

The most commonly used strategy is the weekend gap technique, which looks to profit from the change in price between when the market closes on a Friday and when it reopens on a Sunday.

Forex positions held over the weekend may incur rollover charges. It doesn't trade at all. Instead, it records the price rate differences between the week start, when the gap was detected, and the ends of all weekdays. That way, as a result, we have here potential gains for 10 different cases: close on 5 different weekdays for going in the same direction as the gap, and close on 5 different weekdays for going in the opposite direction.

The totals are produced to the Journal tab of the MT4 Strategy Tester. Backtest this "EA" on a daily timeframe or lower. You can quite easily alter these EAs to make them trade more correctly and then they could be used on live accounts to trade the Forex gap strategy.

But this remains is up to you. If you have some questions or comments about the weekend gap trading in Forex or the provided tools for gaps backtesting, you can discuss this topic in our forum.

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With the forex markets trading 24 hours a day, price gaps are relatively uncommon. Does the occasional weekend gap contain a statistical edge?

The strategy programmed below can be downloaded in the Free Strategies section. Over the years, I have repeatedly found that forex markets are mean reverting in general, with the possible exception of the JPY pairs.

Does mean reversion apply to weekend gaps as well? And if it does, can we program a strategy to exploit this phenomenon? A memorable example would be the capture of Saddam Hussein in December EURUSD gapped down pips when markets reopened on Monday. I have observed that these weekend gaps usually reverse completely by the middle of the trading week. Due to thin liquidity, markets typically overreact to the weekend news when trading reopens on Monday. With increasing liquidity in the ensuing London and New York sessions, this imbalance tends to correct itself.

This will help it perform more consistently across various markets, or across different volatility regimes in the same market. The gap reversal, if successful, should have been completed by then. That went much better than expected. The only bummer is the miserable sample of 48 trades. To bump up the sample sizes, you can backtest the strategy on other markets too. It does appear that forex weekend gaps have a tendency to reverse by the end of the trading week.

This statistical edge can easily be exploited, as long as you have strict risk management rules to protect your downside. You can instead include it as part of a diversified portfolio. As usual, you can download the weekend gap strategy in the Free Strategies section. Access day FREE trial here! Get up to USD discount! Try the FREE version here! The MACD is a simple and effective momentum indicator.

The Laguerre RSI attempts to improve the responsiveness of the regular RSI, whilst keeping whipsaw trades to a minimum. Here I explain its inner workings and show you how to build a trend following strategy around it. Have you heard of fixed ratio money management?

How does it compare to the popular fixed fractional approach? The ability to efficiently trade a diversified portfolio of strategies is one of the biggest advantages of algorithmic trading. The QQE is a mysterious indicator that sometimes pops up in trading forums. Does it deserve a place alongside the more traditional momentum indicators like the RSI and CCI?

Bollinger Bands are great at detecting overbought and oversold conditions. Trailing stop losses are a popular feature in many trend following systems. Bollinger Bands, the ever-popular technical indicator among retail traders, actually contain two inbuilt trailing stops. Are these any good? Hey there, Wayne here! Trading Tact is where I share my trading methods and insights. Get more trading ideas and strategy development tips delivered to your inbox!

We keep your data private and share your data only with third parties that make this service possible. Read our full Privacy Policy. Your email address will not be published. Submit Comment. Should you increase your lot sizes for higher probability trades? The Money Flow Index is sometimes called the volume-weighted RSI. Can it outperform the RSI in this trend following strategy? Are you a victim of excessive trade slippage? Selecting a profitable entry is a critical step in strategy development.

The Schaff Trend Cycle is a unique combination of the MACD and Stochastic indicators. The Kelly criterion is a famous mathematical formula that attempts to maximize your long-term capital growth. Knowledge of intermarket correlations can improve your forex trading win rate. Here I explain three important types of correlations, and how you can use them to benefit your trading.

Forex day trading seems to have a particular appeal to new traders. Here I highlight five hidden challenges of day trading, and offer some suggestions on how to overcome them. Partial profit taking is a dilemma often faced by long-term trend followers. Could this benefit your overall strategy performance? A catastrophic stop loss is a vital risk management tool for many traders.

Multiple timeframe backtesting can be a valuable addition to your strategy development workflow. Here I explain why you should do it, and how to conveniently do it in MT4 and StrategyQuant. Get trading ideas and strategy development tips delivered to your inbox!

Forex Weekend Gaps: Can You Exploit Them? Nov 10, What Causes Forex Weekend Gaps? Weekend gaps are caused by unforeseen geopolitical events. Military conflicts, political uprisings and natural disasters often fall into this category. Programming a Forex Weekend Gap Strategy These are the entry conditions for fading the weekend gap: It is Monday, AND The weekend gap exceeds 3x the 5-period ATR.

Wrapping Up It does appear that forex weekend gaps have a tendency to reverse by the end of the trading week. Want to develop a portfolio of automated trading strategies? Development Roadmap. Supercharge your strategy development with StrategyQuant Access day FREE trial here! Strategies need improvement? Follow Us. Popular Posts. Automated MACD Divergence Forex Trading Strategy The MACD is a simple and effective momentum indicator.

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I don't believe in luck. Particularly if you combine them with other price tools. And if it does, can we program a strategy to exploit this phenomenon? Have you heard of fixed ratio money management? Experience helps too.

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