Brad Alexander
FX Large Limited
In Acuity Trading’s continuing series of educational videos, today we want to take a look at Gap Trading.
If you’re not familiar with it, this is what a gap looks like.
You might find these when the markets open Monday morning in Auckland or Sunday night in London when something dramatic has happened over the weekend. As we have seen, this could result from an opinion poll that caught an entire nation off guard, a geo-political event, or news from a central bank. These are not restricted to weekends, of course, but they are rare during the week.
In trading however, there is an expression that goes, “Gaps always get filled” That is to say that price will always retrace to return to pre-gap levels.
Does this really happen? Very often, it does. If we take a look at a few examples, we see that it’s often true. USDCAD, USDJPY, Cable, here’s another Cable, and EURGBP. But, what about this one? This price action on another EURGBP from earlier in the year showed no sign of returning to the downside. So? What makes this one different from the others? Simple! Support and resistance.
In all these successful cases, price was within and bounced off support or resistance and you would want to enter the trade on a confirmation of the bounce.
In the case of EURGBP the gap was actually well above this previous line of resistance which very quickly became a line of support.
Here we have a couple of weekend gaps in Sterling. Cable had just experienced a huge surge thanks to a very bad Non-farm Payroll report but on Saturday a negative poll was released having it open much lower and heading south. News sentiment on GBPUSD had been neutral for a few days so that wasn’t giving us a hand.
However, the situation on EURGBP on the same day was different. It had been on a bullish run for a few days and the gap just helped it along the way with News Sentiment showing bullish confirming the run. When the run hit resistance, News Sentiment shifted dramatically and we were confident selling EURGBP.
Here is another case with USDCAD. Price kept rising until it hit a line of resistance which was a previous line of support. By the time this double top had formed, News Sentiment had turned to bearish and we were confident going short. The gap was filled and more.
So to summarise:
1. Does Price fill All Gaps?
2. Probably: as long as you pay attention to support and resistance
3. and you use shifts in news sentiment to confirm your entry
While we may offer market commentary based on fundamental or technical analysis, we do not offer trading advice and cannot be held liable for any decisions taken by viewers and readers of our material.
Editors’ Picks
EUR/USD gains traction to near 1.1800 as tariff uncertainty weighs on US Dollar
The EUR/USD pair holds positive ground around 1.1795 during the early Asian session on Tuesday. The US Dollar weakens against the Euro amid US tariff uncertainty. The release of the US January Producer Price Index report will be in the spotlight later on Friday.
GBP/USD treads water near 1.3500 as BoE-Fed divergence debate stalls
GBP/USD spent Monday spinning in place as market participants await a fresh catalyst to break the pair out of its recent range. The BoE's February hold came with a surprisingly dovish 5-4 split, and UK Consumer Price Index data last week showed inflation easing to 3.0%, reinforcing the case for earlier rate cuts, with most economists now looking to April or March for the next move.
USD/JPY off highs, stays firm near 155.00
USD/JPY is off the high but remains firm near 155.00 in the Asian session on Tuesday. The upside seems capped by intervention fears, which lends support to the Japanese Yen. Apart from this, bets that the BoJ will stick to its rate-hike path limit JPY losses. Additionally, the pair faces headwinds alongside the US Dollar due to uncertainty around Trump's tariffs.
Editors’ Picks
AUD/USD keeps its range near 0.7050 amid tariff jitters
AUD/USD gains some positive traction, trading close to 0.7050 early Tuesday, following the previous day's late pullback from over a one-week top. Trump's tariff turmoil keeps the US Dollar in check due to Fed rate cut hopes, while supporting the Aussie amid the RBA's hawkish stance.
Gold falls below $5,200 amid pullback from monthly highs
Gold price is back under the $5,200 level in the Asian session on Tuesday, pulling back from the highest level in four weeks reached at $5,250 earlier on. The Gold price upsurge was fuelled by heightened geopolitical tensions and global trade uncertainty following US tariff decisions. However, an improvement in risk sentiment and a fresh US Dollar upswing trigger a corrective decline in the yellow metal.
USD/JPY off highs, stays firm near 155.00
USD/JPY is off the high but remains firm near 155.00 in the Asian session on Tuesday. The upside seems capped by intervention fears, which lends support to the Japanese Yen. Apart from this, bets that the BoJ will stick to its rate-hike path limit JPY losses. Additionally, the pair faces headwinds alongside the US Dollar due to uncertainty around Trump's tariffs.
Solana DeFi platform Step Finance to close operations following treasury hack
The Solana based decentralized finance platform Step Finance announced it will end all operations effective immediately following a breach that drained its treasury.
Supreme Court nixes tariffs, Trump teases 15% global tariff
On February 20th, the Supreme Court ruled that Trump’s global tariffs under IEEPA authority were unconstitutional, effectively nullifying the framework. However, the relief was short-lived. Within hours, Trump floated a 15% blanket tariff under an alternative legal authority.
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