Opening Gap: A Trade Strategy

We often look for trends, reversals, imbalances, impulsive moves and a host of regressions. Every now and then we get something called a gap. A gap is a volatile move where the market reprices so fast that in low liquidity the range is expanded. Sometimes by a pip, sometimes by 100’s of pips. The repricing usually comes on the back of something big and fundamental. Last night’s catalyst was market intervention by the Bank of Japan which is buying ¥billions of bonds. Algos tend to not leave orders left behind, especially with a physical gap in price. The low liquidity void makes it easy for the backfill to take place and trading that gap can be profitable. Obviously, there is a risk the move could attract FOMO traders who extend the move, so looking left for areas of support and resistance from known areas of supply and demand is key. You don’t want to get involved at levels with previously low liquidity. 

For more trading details, please check the hyperlinks with time stamp indicated from the video:

0:13 USD/JPY