By www.TheForexNittyGritty.com
Technical Analysis of Gaps in Forex Trading
Uncertain times give rise to chaotic markets. Stocks, commodities and currencies tend to rise and fall unevenly. When currencies open the trading day well above or below their price at the end of the previous trading day it is called a gap. There is a gap in the price curve. This can be disconcerting for many traders.
However, astute traders can profit from technical analysis of gaps in Forex trading. Gaps occur for any number of reasons and gaps are often part of a larger picture which in turn is predictive of future pricing. Thus technical analysis of gaps in Forex trading looks at recent price patterns in order to profitably predict the future. Understanding gaps is a large part of technical analysis of Forex pairs.
Technical Analysis
Technical and fundamental analysis of Forex pairs are both cornerstones of effective and profitable Forex trading. Understanding the fundamentals is basic to working in Forex. However, much of the profit that traders gain comes from seeing trends and reversals in market sentiment. Traders use technical analysis of gaps in Forex trading as an adjunct to other signals. Oftentimes the most profit to be had in Forex trading is not to have correctly anticipated a gap but to successfully interpret its meaning.
Gaps and Signals
A commonly used and easy to read technical analysis system is Japanese candlesticks.
Many traders use candlestick patterns in Forex trading as a mainstay to their technical analysis or at least as a clear means of visualizing the market. Technical analysis of gaps in Forex trading means recognizing candlestick signals in which a gap is a major factor. With technical analysis of major Forex currencies in mind here are a few examples of technical analysis of gaps in Forex trading from the world of Japanese candlesticks.
Bullish Engulfing Pattern
This is a major candlestick signal. It occurs at the end of a downward trend for a traded currency and heralds a bull market. Interestingly the direction of the gap is away from the direction in which the currency is headed. In this signal a currency is falling in a clearly defined trend.
Then it gaps down to open a day but trades upwards and finishes the day above the opening price of the previous day. When this signal occurs with the second day being a high volume day and when the downward gap to start the day is substantial it is an even stronger indication of an emerging bull market.
The Three Black Crows
This candlestick signal has not just one but three gaps. There has been a well defined up trend of the traded currency. Then the currency trades downward for the day. On the two subsequent days it gaps up to start the day but both days are losing days. The signal looks like three black crows on successively lower perches. This signal is commonly a strong indication that the upward trend is over and the traded currency is headed downward.
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When currencies open the trading
day well above or below their price
at the end of the previous trading
day it is called a gap.
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om
There is a gap in the price curve.
This can be disconcerting for many
traders.
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om
However, astute traders can profit
from technical analysis of gaps in
Forex trading.
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om
Gaps occur for any number of
reasons and gaps are often part of
a larger picture which in turn is
predictive of future pricing.
8. www.TheForexNittyGritty.c
om
Thus technical analysis of gaps in
Forex trading looks at recent price
patterns in order to profitably
predict the future.
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om
Understanding gaps is a large part
of technical analysis of Forex pairs.
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om
However, much of the profit that
traders gain comes from seeing
trends and reversals in market
sentiment.
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om
Traders use technical analysis of
gaps in Forex trading as an adjunct
to other signals.
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om
Oftentimes the most profit to be
had in Forex trading is not to have
correctly anticipated a gap but to
successfully interpret its meaning.
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om
A commonly used and easy to read
technical analysis system is
Japanese candlesticks.
18. www.TheForexNittyGritty.c
om
Many traders use candlestick
patterns in Forex trading as a
mainstay to their technical analysis
or at least as a clear means of
visualizing the market.
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om
Technical analysis of gaps in Forex
trading means recognizing
candlestick signals in which a gap
is a major factor.
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om
With technical analysis of major
Forex currencies in mind here are a
few examples of technical analysis
of gaps in Forex trading from the
world of Japanese candlesticks.
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om
It occurs at the end of a downward
trend for a traded currency and
heralds a bull market.
Interestingly the direction of the
gap is away from the direction in
which the currency is headed.
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Then it gaps down to open a day
but trades upwards and finishes
the day above the opening price of
the previous day.
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When this signal occurs with the
second day being a high volume
day and when the downward gap
to start the day is substantial it is
an even stronger indication of an
emerging bull market.
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This candlestick signal has not just
one but three gaps.
There has been a well defined up
trend of the traded currency.
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On the two subsequent days it
gaps up to start the day but both
days are losing days.
The signal looks like three black
crows on successively lower
perches.
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This signal is commonly a strong
indication that the upward trend is
over and the traded currency is
headed downward.
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There are many more candlestick
signals that are useful for technical
analysis of gaps in Forex trading.
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One only needs to learn the system
to use Japanese candlesticks to
read market sentiment whether it
results in trading gaps or not.
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