The truths of trading and gaps
Economic education trader and gaps. What is the relationship between them? Will economic education help traders identify gaps in advance? No, of course. Experience and intuition can help a trader anticipate the appearance of a gap. Meanwhile, there are no traders who would always bypass the gaps or just use them to their advantage.
Indicators and Gaps
Numerous indicators and oscillators can somewhat moderate your ardor and can give an invaluable clue. There are indicators that quite accurately signal overbought or oversold markets. At this time, you need to be prepared for the fact that a gap in the price may appear on the chart.
Live to Monday or the saga of the huge lot
How much can you lose on a deal with a gap? During trading on the exchange, it is not customary to lose more than 1% of the capital in a transaction. Sometimes some traders raise the bar to 3, or even 5%. Of course, you should strive to lose little on the gap – for this, you need to trade in miniature lots. Unfortunately, not everyone succeeds.
Speculation in a huge lot during the price gap may result in a complete nullification of your account.
Down with the graphics!
It’s hard to believe, but there is a very small category of traders who do not use charts at all during trading. Such speculators work with the help of their secretaries. Refuse graphic analysis of the forced feature of their psychology. How do they relate to gaps? Secretaries tell them about them. Such exchange players look at the market wider than most technical traders. Gaps for them are only temporary success or trouble.
False Gap Information
In some dealing centers, they like to cult from gaps. During training courses in DC you can read a lecture on price gaps. Remember that gaps are very chaotic. Their appearance is difficult to predict. If someone informs you of some clear pattern, then there is reason to think: is this true?
News and Gaps
Price gaps often appear on Monday at the opening of trading. Of course, the main factor behind the emergence of gaps is the release of the news. But a price gap may appear even without the release of the news. For example, with a huge purchase of shares by some speculator. This stock must be of low capitalization, and the buyer must acquire stocks of huge volume. Although on highly capitalized stocks this sometimes happens.
Is averaging appropriate for the appearance of a gap? Many speculators like to average when a price gap appears on the chart. Any averaging is always an additional risk. When a security price falls in a bull market, averaging is relatively safe. Here the emphasis should be placed on the word “relative”. If you play shorts in a bull market, and the chart jumps up, and your average, then the risks will be infinitely great. The price per share may rise from year to year. And of course, no averaging will help you. On Forex, the probability of a counter-move is always high. But there are periods, for example, under BREKZIT, when the chart starts moving from the gap and goes in the “unnecessary” direction for months and years. In the commodity market, averaging is also dangerous when a gap appears.
Graphic models and gaps
Does the probability of a gap increase with the appearance of some kind of graphic model? Analysts believe that is increasing. For example, if you saw an inverted “head and shoulders” model in a bull stock market, then the probability that it will pay off is quite high. And the likelihood that the market can take a leap up is also there. Not only “head and shoulders” or its inverted model can “tell” the direction to traders, but also other models: “triangle”, “pennant”, “rectangle”, etc.
Gaps and “exotic” currency pairs
Which currency pair is more likely to have a gap in the price of the euro – the US dollar or the US dollar – the Zimbabwean dollar. Of course, the Zimbabwean dollar has less liquidity than the euro, and there the probability of a gap increases. But the Zimbabwean dollar is not traded on the exchange, but the peso, forint, zloty, lira, rand are traded. If you want to get into the trend, then “exotic” currencies can give you the opportunity to earn money, as they often devalue. And often this devaluation takes place with gaps in price.