Momentum Gaps Forex Trading Strategy is based on the idea that gaps are momentum moves that took place when the market was closed.
To implement this strategy, we will be looking for gaps at the open of a trading session. Although gaps could also occur intraday due to big fundamental news spikes, it is uncommon. It is easier to find gaps during the open of a session. Because of this, it is preferred to trade this strategy on markets that open and close every day in order to find more opportunities. This could be the DAX or other indices that have an exact open and close, or certain stocks that have enough volume and volatility.
The gap should be clearly observable on the 5-minute chart. If the market does gap, we look for a candle that has a long wick pushing against the gap. The wick represents the portion of the market that expected for the gap fill that didn’t occur. This candle with long wicks should also take place within the first two 5-minute candle. After that, we couldn’t consider it as a valid trading setup. This is because the gap might have moved right away without the slight retrace represented by the wick, or the momentum isn’t that strong, and the gap could start filling up.
Indicators: none
Currency Pair or Market: preferably DAX, indices and high volatility stocks
Timeframe: 5-minute chart only
Trading Session: any market open
How to Trade with Momentum Gaps Forex Trading Strategy?
Buy (Long) Trade Setup
Entry
- The market should gap up at the open of the session
- A candle with a significant wick at the bottom and little to no wick at the top should form within the first two 5-minute candle
- Open a buy market order at the close of the candle
Stop Loss
- Place the stop loss immediately below the wick of the candle
Exit
- Close the trade on the first bearish candle
Sell (Short) Trade Setup
Entry
- The market should gap down at the open of the session
- A candle with a significant wick at the top and little to no wick at the bottom should form within the first two 5-minute candle
- Open a sell market order at the close of the candle
Stop Loss
- Place the stop loss immediately above the wick of the candle
Exit
- Close the trade on the first bullish candle
How to download and install an indicator?
In order to install the indicator on your MT4 platform, you need to follow these steps:
- Click on the “Download Indicator” button located at the bottom of the post.
- Save the file to your computer.
- Extract and move the files into the MT4>Indicator folder of the MetaTrader4 software file directory.
- Restart your Metatrader platform.
- Navigate to “Indicators.”
- And select the “Momentum Gaps Forex Trading Strategy” template to apply it on the chart.
Note: This indicator was developed by T. Morris. AtoZ Markets does not carry any copyrights over this trading tool.
