Market Gaps in Forex and Stocks

There’s a reason not a lot of people can stomach trading currencies. There are things you should be aware of as well before you start your adventure as a Forex trader. These things I’ve learnt over time by making a lot of mistakes and losing real money making them, but those mistakes, those losses later taught me how to avoid being in those same situations again. You have to learn from your mistakes and overcome them. The foreign exchange market is a beast, things change here in seconds, changes in the market could take place that you’d never imagine, that’s the basic point, anything can happen here, anytime.

Market Gaps in stocks and Forex

Here’s a few examples and a few things you should know, you know when the market closes down on Friday’s and open’s on Sunday’s? Well, if the market gaps, and you have a stop loss placed as per your trade idea and risk management and for some reason the market should open with a gap, your stop loss will be hit already, but it will be hit wherever the market decides to open up, so even if you were planning on taking a 20 pip stop out, you might end up taking a 50 or a 40 or even a 70 pip stop out or more depending on where the market opens up. This is the biggest reason most traders don’t like keeping open positions through the weekend. Though this is normal through the weekend, it can also happen in normal market hours triggered by some news or fundamental event. There have been times that I have seen EURUSD jump up 20 pips in between a session due to a better than expected PMI number. Then there’s the recent NZDUSD rate hike which was the last expected rate hike of the year, so it would mark the high for the currency, as soon as the news was released, the pair opened with a 70 pip difference.  Coincidentally the time of the news release was the same as the change over time which created a huge gap in the daily charts.

So, does price always manage to fill these gaps in the stock and Forex markets? Is it a good idea to trade market gaps? That’s true in most cases, I’ve seen it do that pretty quickly too but gaps created fundamentally by news events which could trigger change in sentiment overall among traders however may take a long time to fill, you may see the price continue in its direction without covering up the gap first, such is the case in the image shown above.