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What Are the Weekend Gaps in Forex Market?

I am always asked about the weekend gaps, and whether we can trade them and make some money or not. This is a good chance to have a post about the gaps, because yesterday the forex market opened with some relatively big gaps with many of the currency pairs.

First, let me tell you what a gap is and why they appear on the charts.

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What Is a Price Gap?

Gap is an empty space you can see between two candlesticks or bars. It appears on the charts because of the price movement during the time that the chart had not been updated, like when the market is closed. “Gaps” are very common in the stock market, because unlike the forex market, the stock market is not open 24 hours per day, and for example the New York Stock Exchange (NYSE) opens at 9:30 a.m. and closes at 4:00 p.m. When the stock opens, there are visible differences between the yesterday’s close price and today’s open price. And this difference makes the gap. Look at the several gaps on the Netqin Mobile Inc daily chart (the black arrows). These gaps are completely normal on the stock market, and you can see them with any stock instrument:

Forex market is open 24 hours per day and 5 days per week. We can rarely see a gap during the forex market open time, unless a too strong price movement happens because of a too strong news release, otherwise we don’t see a gap. However, gaps are also very common in forex market to form, when the market is closed during the weekend.

Most people think that the currency market (forex) is closed during the weekend, but this is not true. It is only closed to retails traders, but it is always open for the central banks and the related organizations. Currency transactions are always done electronically and can not be stopped even for one second. When the market is open and buying and selling are ongoing, then the price also goes up and down, because the price changes based on the supply and demand, and when there is supply and demand, the price changes also.

That is why when the market opens to the retails traders on Sunday afternoon at 5pm EST, the price has a visible difference compared to the level it was closed on Friday afternoon. If the price opens higher than the Friday afternoon price, we will have a gap up. If it opens lower than the Friday afternoon price, we will have a gap down.

Can We Make Money from the Price Gaps?

I heard this the very first days I started learning to trade, that “the price always fills the gap”. It means if the price opens with a gap down, it will go up to cover or fill the gap between the Friday afternoon and the Sunday afternoon price. If it opens with a gap up, then it will go down to fill the gap.

I have seen that in many cases this is true and the price really fills the gap. Some traders use this to make money. When they see there is a gap up, they go short and wait for the price to fill the gap and then they get out. When there is a gap down, they go long and wait for the price to fill the gap and then they get out.

I have never done that, and I don’t recommend you to do it too. Why?

First of all, I don’t trade based on what people say. I trade based on what I see on the chart. I have to see a setup formed on the chart to enter the market. A gap doesn’t mean anything to me. People say the price always fills the gap, but I say what if it doesn’t? If you don’t believe me, just check the charts and see how many gaps there are (both the forex weekend gaps, and the gaps we have on the stocks charts) that are not filled.

My other question from these people is that where should we place our stop loss? In many cases the price keeps on going against the gap before it turns around and fills the gap. And sometimes it never turns around to fill the gap. So the question is where should our position be stopped out?

There is no rational and technical answer for this question. Therefore, I never trade the gaps. That is it.

Am I Writing This Article to Tell You Not to Trade the Gaps?

Yes, and no. Yes, because you have to know that you should not trade based on the rumors like what people say about the gaps. And no, because the most recent gaps that are appeared on the charts can create some strong candlestick patterns for us.

Let’s start from USD/CHF.

USD/CHF closed at 0.91357 last week. Last night, it opened at 0.91735 which is a 38 pips gap up. The current daily candlestick that opened at  0.91357 is going down to fill the gap. If it goes down and closes as a big bearish candlestick that covers some part of the previous candlestick’s body, we will have a strong Dark Cloud Cover:

There is a 47 pips gap down on EUR/USD charts too. It seems EUR/USD is not eager to go up to fill the gap, the way that USD/CHF is going down strongly. If the current EUR/USD daily candlestick closes as a small candlestick without filling the gap, then we will somehow have a Bullish Abandoned Baby. Of course for a Bullish Abandoned Baby we need a Doji, but it is still ok to have a small body.

Bullish Abandoned Baby has to be confirmed by the next candlestick. However, if the last EUR/USD daily candlestick goes up strongly and closes as a strong bullish candlestick, then we will have a Bullish Piercing or Engulfing pattern that doesn’t need to be confirmed by the next candlestick. In case of USD/CHF, if it really closes as a strong Dark Cloud Cover or Bearish Engulfing pattern, then it will not need any confirmation and our trade setup is complete.

We can not say anything for now. We have to wait for the candlesticks to close.

There are big gaps with many of the other currency pairs like USD/JPY, GBP/JPY, USD/CAD, EUR/GBP, GBP/CHF, EUR/AUD and EUR/CAD.

AUD/JPY also opened with a 24 pips gap up and is going down now. I will close my second AUD/JPY position if the current daily candlestick closes as a big bearish candlestick:

Let’s wait and see. If you like to read more about the gaps, there are already some articles on LuckScout. Many of them are not written by me, but I am sure you will learn a lot reading them:

  1. How to Trade Using Doji Candlestick and Bollinger Bands®
  2. A Forex Trading Plan
  3. How to Use Bollinger Bands®

Weekend Gaps and Your Pending, Stop Loss and Target Orders

Two weeks ago I talked about the weekend gaps, because some of the currency pairs opened with a relatively big gap at that time. To know what the weekend gaps are and how some traders trade them, and whether I recommend you to trade the weekend gaps or not, please read this article: What Are the Weekend Gaps?

This weekend, the GBP cross currency pairs opened with an extraordinary big gaps. GBP/JPY opened with a 177 pips gap down, EUR/GBP with an 80 pips gap up, GBP/CHF with a 152 pips gap down, GBP/CAD with a 171 pips gap down, and GBP/USD with a 157 pips gap down.

This unbelievable gap is related to GBP excessive weakness during the past several days. I don’t want to focus on the fundamental details of this event. Whatever the reason is, fortunately the gaps were all in our favourite direction with the positions we already had. We had short positions with GBP/JPY, and the gap added 177 pips to our profit, and also made the market open below a support level which means GBP/JPY can go even lower. Click on the image:

And the GBP/CAD 171 pips gap down took our short position to +860 pips profit:

There is an important question regarding the weekend gaps. What will happen to our buy/sell pending orders including the stop loss and target orders when there is a weekend gap?

Let me explain a little more what I mean by this question. We either have a position, and this position had a stop loss and target order, or we have some buy/sell pending orders to enter the market when the price reaches to the desired level. If we hold our positions and pending orders during the weekend, and then the market opens with a gap (either down or up), what will happen to our pending orders? Will they be triggered exactly where they are set, or they will be triggered where the market opens on Sunday afternoon?

Here I have explained that the currency market is closed only to retail traders during the weekend, but it is always open 24 hours per day and 7 days per week. That is why we see a gap on our charts, when the market opens on Sunday afternoon EST. If the markets was also open to us during the weekend, then instead of the gaps, we would have candlesticks on our charts. It means when we have an open position during the weekend, the position is working, but we don’t see the changes. We see the new price only when the market opens on Sunday afternoon. Therefore, what happens while -for example- we have a GBP/JPY long position at 171.208 and the stop loss is placed at 170.801 which is 40.7 pips below our entry, and then the market opens on Sunday afternoon at 169.764 which is 103 pips below our stop loss?

As in reality the market is open during the weekend, but it is just our trading platform that doesn’t get updated, so our stop loss should be triggered exactly where it is set (170.801), and when the market opens on Sunday afternoon and our platform becomes updated, we will see that our position is stopped out and we have lost 40.7 pips. Right?

Wrong!

This is correct that in reality the market is open during the weekends, and so our position should be stopped out exactly like the price hits our stop loss during the weekdays that our platform updates normally. But this is not what we see on the platform when it becomes updated on Sunday afternoon. Our position will be closed where the market opens on Sunday afternoon, not where our stop loss is placed. This is an outrage, right? Yes, it is. But it is what it is.

Here is the general role for the pending orders and the weekend gaps, no matter if your broker is a market maker or ECN/STP (read this):

The pending orders, including the stop loss and target orders, will be triggered always where it is against you and in the broker’s favour.

In this case, the difference of a market maker and ECN/STP broker is that with a market maker broker, the extra money you lose goes to the broker’s pocket, but with ECN/STP broker it goes to the liquidity provider’s pocket and the broker make no profit out of your loss (of course if it is a real ECN/STP broker, not a fake one).

So here is something that will happen with different positions, stop loss and target orders, and pending orders:

1. You Have a Long Position:

  1. If the market opens below the stop loss on Sunday afternoon, then the position will be closed where the market is opened, not where the stop loss is set, and so, you will lose the stop loss plus the difference of the stop loss and the market open level (outrage).
  2. If the market opens above the target, then your position will be closed where the target is set, so that you will not gain more than your target (outrage).
  3. If the market opens between the stop loss and entry, then the position will remain open until you close it, or the price hits the target or stop loss while the market is running.
  4. If the market opens above your entry and below the target, then it will not be closed and will remain open until you close it, or the price hits the target or stop loss while the market is running.

2. You Have a Short Position:

  1. If the market opens above the stop loss on Sunday afternoon, then the position will be closed where the market is opened, not where the stop loss is set, and so, you will lose the stop loss plus the difference of the stop loss and the market open level (outrage).
  2. If the market opens below the target, then your position will be closed where the target is set, so that you will not gain more than your target (outrage).
  3. If the market opens between the stop loss and entry, then it will not be closed and will remain open until you close it, or the price hits the target or stop loss while the market is running.
  4. If the market opens below your entry and above the target, then it will not be closed and will remain open until you close it, or the price hits the target or stop loss while the market is running.

3. You Have a Buy Pending Order:

  1. If the market opens above your buy pending order, then you will enter where the market is opened, not where the order is set. It means your entry price will be higher than where you wanted to enter (outrage).
  2. If the market opens below your buy pending order, then you will not enter, and your pending order will remain intact.

3. You Have a Sell Pending Order:

  1. If the market opens below your sell pending order, then you will enter where the market is opened, not where the order is set. It means your entry price will be lower than where you wanted to enter (outrage).
  2. If the market opens above your sell pending order, then you will not enter, and your pending order will remain intact.

Note: The above “outrages” can be experienced with live trading, not demo trading.

Does It Means that You Should Not Hold Your Positions and Pending Orders During the Weekends?

This is what everybody may think, if he reads the above bad news. If we hold our positions during the weekend, and the market opens with a big gap against our position, then our loss will be much bigger than our stop loss.

This is true, but the good news is that if you enter when there is a “strong setup”, then in most cases the weekend gap will not be against you, and will be in your favour. I showed you two examples at the beginning of this article, and you saw that the huge gaps we had this weekend, not only did not make any problems for us, but also made a lot more profit, because our positions were at the right direction. This is because of nothing, but taking the positions based on the strong setups.

I wrote such a long story to emphasize on the importance of following of the strong setups and ignoring the weak and questionable ones. If you are new here on LuckScout, please follow the below articles to learn what I mean by “strong setups”.

If you are worried about the pending orders, you can cancel/delete all of them on Friday afternoon, and set the new ones after the market open on Sunday afternoon (of course if you still want to take those positions). So pending orders will not be any problems.

There is another question left:

What if the market opens with huge gap against us, even if our position is taken based on a very strong setup?

Everything is possible in this market and business. It is possible that the market opens with a huge gap against you, even when your position is taken based on the strongest trade setup ever. You can lose a lot. However, there are a few things you have to consider:

  1. Huge gaps rarely form on the markets, and they rarely can be against you when your position is taken based on a strong setup.
  2. The way that we manage our accounts and losses, we will not get hurt, even if we lose a lot because of a huge gap.
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27 thoughts on “What Are the Weekend Gaps in Forex Market?
  1. Tom says:

    Education from real life … thank you 🙂

  2. Pipsoholic says:

    Thanks Chris… a very good analysis on gaps and candlestick pattern. Your articles are really helpful especially in the CS because I also like CS analysis Hope can go along with the trend this coming month.

  3. Davor says:

    Dear Sir

    First, let me compliment you on the way you are running this site. I find it to be the most educational site I have seen on internet. It would be a shame if you decide to quit.
    Regarding weekend gaps in I must admit that I strongly disagree with you. I think that it is a very profitable and high probability set up if it is outside bollinger band that can be used to close open positions as well as to trade countertrend. It is true that you do not have levels to put stops but you can use AT R in such cases. I trade it so that I put stop 1ATR (20 days) above (bellow) open price and target 2ATR bellow (above). Btw if you closed your AUDJPY trade at the open instead at the close as you probably did you would have a much better exit.

    Regards Davor

    • Chris says:

      Hi Davor, Thank you for your kind words.

      This is really great that you are a gap trader also and you are very happy with it. Congratulations!

      Obviously you have a well-defined system for trading the weekend gaps, and this is so valuable compared to those who trade the gaps just because “the markets fill the gaps”. I would be so thankful and glad if you could write a small article about your system and share it with the LuckScout followers. I will be your first reader, because I have really interested in what you said. Of course, if you don’t want to share your system, I understand it 100%.

      Thank you again.

      • Davor says:

        Hi Chris
        I can write an article but you must let me know if Word as a program is good enough and since I have never written anything longer then short letter I am not sure if I will know how to put any pictures. So, in order to write an article I shall need your help.

        Regards Davor

        • Chris says:

          Hi Davor,

          Thank you for your kindness. Yes, Microsoft Word is fine. Regarding the pictures, you can save the screenshot through your trading platform and attach it to the email that you will send me.

          • Peter Wagner says:

            Davor

            you can easily add images into WORD using the mouse.
            Windows 7 has a SNIPPING TOOL. You can find it by clicking on the flag icon in the bottom task bar. type “snipping tool” without exclamation marks. then left click & drag the tool to the task bar at the bottom. When you want to add a ‘snip’ of part of a chart to a word document – you just click on the tool in the task bar when the chart you want to copy from is on the screen – wait for the screen to go whitish – then box the part you want to copy and left click. An image comes into a popup. Now go to the word document and left click on it and then right click and paste – the image appears on the document. you can resize it by clicking and moving the borders. If you know how to out a text box into the document it is better to place the snip into the text box (for ease of editing the document later). this tool is neat.

  4. Joshua says:

    Hi LuckScout,

    How do I send my facebook page across. Thanks

    Yours,
    Joshua

  5. EMMANUEL says:

    plz tell us if eventually have good setup.

  6. Vladimir says:

    Thaks for this article.
    I opened a short position USD/CHF previus I read this article.

    Thanks again.

    **When I read any article I shere it in “google+”.

  7. Raj says:

    Hi Chris,

    Your trade setups and explantions gave a good understanding for me to trade in a better way. I reduced the number of indicators that I have been using and therefore have more clarity on what to focus. I shall remain thankful for the knowledge you are sharing.

  8. Javed says:

    Hi.
    I have just joined your mailing list. The stuff I receive and read is awesome. Today I received article about weekend gaps. I would very much like to receive your thoughts or an article on HOW TO TRADE GAP BETWEEN HIGHLY CORRELATED PAIRS?
    I am hoping after getting proper knowledge on trading correlated pairs gaps, I will trade them. The gaps I see between EUR/USD GBP/USD AUD/USD and NZD/USD ( they all supposed to be positively correlated). I see these gaps on 1H, 4H and daily charts.
    Thanks
    Regards
    Javed

  9. Alejandro O, Bastida says:

    still I will continue to read blogs…

  10. Muktar Abduljalal says:

    Hi chris,
    From what I have just read and, going by the number of pips of weekend gaps some currency pairs exhibit, do you think it would be advisable for someone with a tighter stop loss to leave his position(s) open during the weekend?

  11. Ivan Todorov says:

    Hi Chris,

    I also heard “the price always fills the gap” months ago and decided to check this out. I must admit that in most of the cases people who said that were right, but there are plenty of situatons when the price don`t… So I totally support your thoughts not trading based only on that belief.

    Btw I`m really interested in Davor`s technique and I would be grateful if he share it in an article.

    Thanks in advance!

  12. john ren says:

    Hey chris i tend to trade 4 hour position trade which last up to anything from 1 to 4 days. My stop loss is calculated 5 pips below major support. I am quite profitable but the problem is that i have never held trades through weekend and close them on Friday, even it means i am in loss. But what i noticed is that most of the trades that i close on Friday tend to reach TP the following Monday or Tuesday. I am just wondering is it really risky holding trades throughout the weekend as price gaps can occurs? What is the biggest price gaps that have occurred on Sunday market opens? Thank you

    • John,

      If you enter the market based on a strong trade setup on a long time frame like daily, weekly or monthly, you don’t have to be worried about the weekend gaps. Swing traders sometimes hold their positions for months or even years.

  13. john ren says:

    Hey Chris:
    Regard to the question above, i am actually only trading the 4 hour chart and my trades only last between 1 to 3 days. So is it still suitable to hold trades over the weekend?

    • John,

      The best thing that can answer your question is that you check the weekend gaps after the positions you have taken in the past and see how the gaps have affected your positions.

  14. Shalewa A says:

    Hi Chris, thanks again and again, I read this last year and reading it again now. There is soooooo much to learn from this great site.

    I hope you are well as you haven’t written the usual Sunday article this week, no pressure, just checking you are well.

    God bless and keep you 🙂

  15. Harry Rich says:

    Hello Chris,

    I am learning a whole lot from your site, many thanks.

    I was wondering whether you trade fridays evening or do you leave fridays because of Weekend abnormalities, e.i. occations where you can be stopped out?
    Or is it only monday night to thursday?

    Many thanks,
    Harry

    • Thank you Harry 🙂

      I am not a day trader. I hold my positions for several days, weeks and sometimes several months. When a too strong setup forms by Friday candle, I enter the market at the end of the same day, if I see the setup on time. If not, I enter at the market open on Sunday afternoon.

  16. Dilshan Peiris says:

    Hi,

    I opened a sell order (GBP/USD) at the price of 1.2870 on Friday. Still the order is opened. My Take profit is at 1.2850. I noticed that the price came down to 1.2847 on Saturday & moved to 1.2883 again. Does this trade give me a profit?