Forex Gap Trading Strategy

The Forex gap trading strategy is a straightforward and exciting price action trading system that is focused on trading gaps that sometimes occur in the currency markets when the market opens again.

One thing that you should have at the back of your mind is that gaps are visible once every week.

Gaps tend to show up between the close of trade on Friday and the start of trading on Monday.

There are certainly weeks when gaps will not appear, this is normal, don’t freak out!

Gaps are known to fill quickly and price tends to move back to the original pre-gap level.

We intend to exploit this phenomenon when we built the forex gap strategy.

Chart Setup

MetaTrader4 Indicators: WeeklyPivot.ex4 (Default Setting), Ichimoku Kinko Hyo.ex4 (Colors Modified; Tenkan-sen=None, Kijun-sen=None, Chikou Span=None), Drive (Inputs Variable Modified; Depth=30)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour

Recommended Trading Sessions: New market open

Currency Pairs: Any pair

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Download the Forex Gap Trading Strategy

Buy Trade Example: EUR/USD (EURO / US Dollar), H1 Chart

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry if the following indicator or chart pattern gets put on display:

  • If lower forex gaps (where Friday’s closing session candlestick is higher than Monday’s session open candle) pops up on the activity chart as depicted on Fig. 1.0, we expect the gap to get quickly filled and a buy entry is initiated on the subsequent candle.
  • Prior to the condition above, if the trade setup gets sustained through a sandy brown Ichimoku Kinko Hyo Metatrader 4 indicator cloud that lines up below the candlesticks (see Fig. 1.0), price is said to be driven higher i.e. a buy alert will suffice.
  • Prior to the forex gap formation, if the green line of the Drive custom indicator crosses and stays above the red line as seen on Fig. 1.0, a buy signal is said to be looming.

Stop Loss for Buy Entry: Place stop loss below the gap.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes precedence:

  • If price opens & closes below a previous breached WeeklyPivot indicator resistance level while a bullish trend is ongoing, a bearish reversal is said to be imminent, therefore an exit or take profit stance will do.
  • If the Ichimoku Kinko Hyo forex indicator displays a thistle cloud on the activity chart during the course of a bullish signal, it is a signal to exit or take profit at once.
  • If the green line of the Drive custom indicator intersects the red line while a bullish trend is running, bulls power is said to be weaning, as such an exit or take profit is duly advised.

Sell Entry Rules

Enter a sell order if the following holds true:

  • If higher forex gaps (where Friday’s closing session candlestick is lower than Monday’s session open candle) pops up on the activity chart as illustrated on Fig. 1.1, we expect the gap to get quickly filled and a sell entry is triggered on the following candle.
  • Prior to the condition above, if the trade setup gets sustained through a thistle Ichimoku Kinko Hyo forex indicator cloud that stays above the candlesticks (refer to Fig. 1.1), price is said to be pushed to the downside i.e. a signal to go short on the currency pair of focus.
  • Prior to the forex gap formation, if the red line of the Drive custom indicator crosses and stays above the green line as shown on Fig. 1.1, a sell signal is said to be imminent.

Stop Loss for Sell Entry: Place stop loss above the gap.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following takes center stage:

  • If price opens & closes above a previous breached WeeklyPivot indicator support level during a bearish trend, a bullish reversal is said to be in the offing, therefore an exit or take profit stance is recommended.
  • If the Ichimoku Kinko Hyo forex indicator displays a sandy brown cloud on the activity chart during the course of a bearish signal, it is a trigger to exit or take profit forthwith.
  • If the red line of the Drive custom indicator intersects the green line while a bearish trend is ongoing, bears power is said to be halting, as such an exit or take profit is duly recommended.

Sell Trade Example: EUR/USD (EURO / US Dollar), H1 Chart

Fig. 1.1

Free Download

Download the Forex Gap Trading Strategy

About The Forex Technical Indicators Used

The Ichimoku Kinko Hyo indicator is an appropriate technical tool, particularly for newbies who want to understand trend momentum, direction, pinpointing reversals and locating entry levels on the forex chart.

The Drive custom indicator is a trend reversal signal indicator.

If the red and the green line intersect, it is an indication that trend is about to change.

If the red line stays above the green line, it is a sell, while when the green line stays above the red line, it suggests a buy.

The WeeklyPivot is a custom indicator that is shows weekly pivot levels, but can also be tweaked for other time frames.

Easy Installation

Start using this forex strategy in just 5 minutes. Click here to get started now.

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