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How to Trade Gaps using Supply and Demand

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In the forex market, gaps are usually formed over the weekend when the market is closed.
They also occure during economic events and news releases on lower time frame charts.

To trade gaps using supply and demand, you start by identifying whether you have a
professional or a novice gap, then trade accordingly using supply and demand trading.

In this article, I’ll explain to you what is a gap, the difference between pro and novice gaps,
and 몭nally, how to trade gaps using supply and demand strategy.

Contents [ hide ]

1 What is a gap in forex?

2 Professional and novice gaps

3 How to trade gaps using supply and demand

4 Conclusion

What is a gap in forex?

Basically, a gap is de몭ned as an empty space that occurs between two candles. It is a sharp
break in price where no trading takes place.

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Compared to the stock market, gaps are not that frequent in forex. In stocks, there are too
many gaps occuring everyday due to earning reports and other 몭nancial events. In forex,
gaps are formed over the weekend and during big major economic data releases.

Here’s what a gap looks like on a forex chart:

On the chart we have a big gap that has formed on Sunday evening. Price jumped all the way
down from 78.69 to 78.48 forming a big gap down.

When the gap is formed above the previous close, it’s called a gap up. And when the gap is
formed below the previous close, it’s called a gap down.

Professional and novice gaps

In forex, we have two types of gaps: professional and novice gaps.

The pofessional gap is formed in the opposite direction of the current trend.

The novice gap is formed in the same direction of the current trend.
On the chart, the novice gap occured during an uptrend, price formed a gap in the same
direction of the uptrend. In the professional gap, the trend was up and price formed a gap in
the opposite direction of the trend.

How to trade gaps using supply and demand

To trade gaps using supply and demand, you start by identifying the types of gaps you have
on the chart.

Do you have a novice or a professional gap?

A professional gap signals a continuation in the same direction of the gap. Whereas a novice
gap signals a reversal.

In supply and demand, a professional gap gives us an early signal that a supply or demand
zone is forming. A novice gap occurs after the supply or demand zone is formed.

1. Novice gaps

In this example, price created a novice gap near the daily supply zone. To trade this novice
gap, you need to look for a supply zone at which price is gapping up. Once you 몭nd the
supply zone, you can go short after the price tests the zone using a market order.

The novice gap signals a potential reversal in the opposite direction. As you can see on the
chart below, price formed a novice gap, tested the supply zone and changed direction to the
downside.
Same thing happened here, a novice gap is created in the same direction of the trend
(uptrend), you look to the left to 몭nd a supply zone and then you place a market order to go
short.

2. Professional gaps

A pro gap is formed in the opposite direction of the trend and it signals a new market
imbalance: supply or demand imbalance.

In this example, the pro gap is used to draw the demand zone as price gapped up in the
opposite direction of the downtrend. To trade pro gaps, you place a limit order at the zone
and wait for price to retrace back to the zone and trigger your limit order.
When a pro gap is formed after a rally in price, you use the gap to draw your supply zone
and place a limit order to short the market when price retraces back up to the zone.

Conclusion
Gaps are very strong and reliable chart patterns to trade. In forex market, gaps occure on
Sundays at the market open or during news releases. In order to trade gaps using supply and
demand, you identify whether you have a professional or a novice gap, then all is left to do is
draw your supply and demand zones and place your orders.

A professional gap gives an early signal of a supply or demand imbalance, whereas a novice
gap comes later on as price retraces back to the zone for a test.
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Welcome to TradingFXHub.com, a Forex trading blog where you can learn and master Supply and
Demand trading. The focus of this blog is to teach you how to trade Forex using Supply and Demand
strategy to analyze and 몭nd high probability trades.

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