Forex Charts – Gaps Get Filled

There is much debate on the subject of “gaps” in charts, and  it’s been my experience that the vast majority of these gaps do indeed get filled. A large percentage (somewhere around 80%) filled during the following day of trading.

A gap in a chart is essentially an empty space between one trading period and the previous trading period. They usually form because of an important and material event that affects the given security, such as an earnings surprise or a merger or in the case of foreign exchange – announcements pertaining to a given countries monetary policy.

Incoming Japanese Prime Minister Shinzo Abe kept up his calls on Tuesday for the Bank of Japan to drastically ease monetary policy by setting an inflation target of 2 percent, and repeated that he wants to tame the strong yen to help revive the economy. Abe, a security hardliner who will be sworn in as premier on Wednesday, when he is also expected to appoint his cabinet, is prescribing a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.

This has produced some very large gaps in nearly every single YEN (JPY) chart I follow – as well as over 7% account profits practically overnight. Generally these kinds of “gifts” don’t fall in your lap very often, and I have a hard standing rule to take this off the table immediately – and then likely wait for the gaps (in some cases 80 pips) to be filled as price dips back down to fill the “empty space” before resuming its trend.

I am expecting the dollar to make its last stand here sometime this week – and then roll over hard into its next leg down – while risk in general looks  full steam ahead . The Yen crosses have been absolutely fantastic and are now either on the cusp of full-scale break out, or a possible breather. I am planning to stay on aggressively until proven otherwise – booking profits along the way, and jumping back in the trade.

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