MARKET UPDATE SUNDAY JUL 10 @ 9:00 PM EST

Well, the market was about as wild as I expected on Friday as I told you in Thursday's update.  I also mentioned that we should have a gap open today Sunday and the professional did not disappoint me again.

Now, here is my impression about gaps.  About 70% of the time a gap will be filled before a market will continue in the direction of the gap.  On a down gap a market will immediately rise back up to test the next resistance level over head and an up gap will fall to test the closest support level below.

There are two types of gaps.  Exhaustion gaps ( SEE CADJPY ) and breakaway gaps ( SEE EURUSD ).

An exhaustion gap is a gap that occurs within the high/low range of the prior swing.

A breakaway gap will occur outside of the prior swing high/low.

Your 1 or 4 hr charts can be used to judge the gaps and the tests...

Exhaustion gaps are false moves and if traded, should be faded.  Breakaway gaps should be traded in the direction of the gap but only after the support/resistance level that the gap has broken out of has been tested on the pullback. SEE EURUSD has not yet been tested. AUDUSD HAS BEEN TESTED...

When retail traders see a gap open they immediately get a woodie for a move in the direction of the gap and want to jump in.  When they jump in the professionals whom caused the gap in the first place, will back price back to the next support/resistance level or if the gap comes first, before a support or resistance level, price will back up to fill the gap.

If, when the test occurs, price should close back withing the range ( last bar before the gap ) that preceded the gap it's a good bet that the gap was a false move and those retail traders who jumped in on the gap are now trapped.  See USDJPY

In the forex market, 90% of the time a gap will occur on a Sunday open.  Just another reason why I don't like to hold a position over the weekend and why I don't like to trade on Sundays.  Sundays are usually a trap unless there is a rare, major news announcement coming out during the Asian session.

Most of the time you would be better served to hold off trading until 1 hour after the start of the London session.

I would like to say more but the matrix is trying to shut down this blog again. If you've taken my 1 on 1 trader training course it wouldn't hurt to review the videos on gaps...Especially if you've been hard headed ( lol ) and trading on Sundays again....

Cheers, Jerry
jerryjstew@yahoo.com
jerry@forextradingmajic.com