Keen observers of price behaviour have no doubt discovered that from time to time, gaps appear in the normal price sequencing. These can usually be seen clearest on a technical chart.

Gaps are areas on a chart where the price of a financial instrument has moved either up or down with no trading in between. As a result of this, the chart shows a "gap" in price. Gaps most often appear between the close of a market and the next session’s open. However, they can also – albeit less frequently - appear intra-day. Gaps can occur as a result of a variety of technical and fundamental reasons. For example, a gap on a Daily chart may be seen if a company announces strong earnings after the market close and its stock then gaps up on the open of the next day. An intra-day gap may appear when, for example, the bid/ask spread widens and market participants may need to pay up or down to enter or exit the market causing price to "jump" from the last traded price to the next that the trader can get filled at. This can often be seen around the release of key market news.

Some quick research on gaps shows that there are several different types of gap including breakaway gaps, exhaustion gaps and common gaps. Each one is said to signify a different outcome for price. Today we are focusing on gaps in the FX markets which are, more often than not, common gaps. In Foreign Exchange markets - which trade 24 hours a day, five days a week - you tend to see gaps occur most regularly on the Sunday open when New Zealand enters the markets first. In actual fact, gaps in Foreign Exchange are relatively common - over the last 18 months there has been a gap in the EUR/USD spot price approximately 65% of the time on the Sunday open. It is these daily gaps that we pay most attention to. One reason that gaps are of interest to traders is because of their tendency to fill. That is to say that price will often trade counter to the direction it gapped in and return to the price at which it last closed on the time frame you see the gap occur. In fact, again, over the last 18 months in the EUR/USD 98% of the gaps recorded have filled at some point. This statistic however, masks the fact that traders can suffer unsustainable draw downs when trying to execute gap-fill type trades on this basis.

However, armed with these statistics, we can get a clear idea that a gap is a “potential setup” that a trader can exploit for profit. One way that these gaps can be traded is by waiting for the market to open and then to see if there is any follow-through in the direction that the market gapped in. If the follow-through is insignificant, we can fade the gap - take a position against the direction the price gapped in - by entering at the first significant support or resistance level that the price reaches and hold the position until the price reaches the Sunday close and the gap technically "fills".
So, gaps are another example of price behaviour that the astute trader should be aware of. A gap can provide a frame of reference for the trader and those who aspire to be profitable will look at what happens after price creates one in order to spot potential patterns that they can profit from. By back testing the phenomenon, traders will likely be able to work out consistent, controlled ways to exploit these for profit.

Invest in Technical Analysis

Over the last year and a half, Inbox Education has focused upon many different elements of technical analysis. We have discussed Market Profile, support and resistance, the simple trend line and Eliott Wave amongst other techniques. All of these techniques allow you to interpret both the market price and the day structure, and to identify buying and selling opportunities. However, one advantage that our professional Proprietary Traders have when using the Market Depth is an ability to identify those buying and selling opportunities that are not manifested on any chart.
Many of the intra-day levels that provide profit opportunities for Futex’s traders are borne out of the interaction between market participants – buyers and sellers – at any one price, or over a series of prices. However, these interactions may only last for a few seconds and would register only as “noise” on a higher timeframe bar or candlestick chart. An example may be the repeated rapid-fire failure of a large participant(s) to breach a particular price. No matter how much is bought at the price in question, and no matter how big the individual clip (transaction), the price just will not break i.e. serious resistance has been formed. But if this activity takes place slap bang in the middle of a 5 minute range, the relevant candlestick or bar just will not highlight it.
Now, just because such “levels” are visible to intra-day Market Depth traders doesn’t mean that they can always trade them and profit accordingly. Of course you have to be in front of your screen to stand a chance but even so the Price Action can be lightning quick and sometimes too quick to exploit. But here’s the key… If you can observe and then commit to memory not only the price level in question but the precise price action that caused it, then whilst it may not pay dividends right there and then, there’s a strong chance that it will later in the trading session or maybe even tomorrow. For example, if the market trades away from this price level, establishes value elsewhere and then returns, the first retest of the same level tends to have a significant and potentially highly profitable reaction.
The most successful Proprietary Traders have an enviable ability to recall every last detail of the market(s) they trade, the trades that they execute – and there may be upwards of 100 each day for some – and the price levels that attract significant participant interaction. Armed with this information they are then able to execute highly effective, high probability trades that the majority of other participants that do not have the same market access and skill simply cannot. Proprietary Trading is a tough career to pursue and gaining an edge over the market wherever possible is vital. Investing in technical analysis that few other participants can see or are even aware of is just one way in which our traders are coached to establish their own edge.

The book has something for both the experienced trader and someone who is reading for a mere insight into the trading world. It gives both a summary of the hard work and knock-backs one experiences when starting out and advice on how to ensure your career is one that flourishes and enables you to achieve long and short-term targets alike. Throughout the book traders give their own unique take on: keys to success, trading techniques, risk management, and the best psychological approach to trading. When reading other books which focus on an individual’s career, you find the same key lessons are repeated throughout. In this sense, Market Wizards gives the equivalent to several books worth of content. Specifically, it provides key lessons on those aspects that are important to consider when expanding your trading knowledge.

Like many of the other best trading novels, Market Wizards leaves you with a sense of inspiration; you now know what it takes to improve your all-round trading! It is a comprehensive guide on how to prepare for what lies ahead, using the experience of some of the best traders as your foundation. By leaning on their experience, you can learn vital lessons from the information the market will throw at you on a daily basis. The book is neatly constructed in a question and answer format making it literally “full of answers”. Each clearly labeled chapter covers the traits or style of each trader meaning you can delve into those sections most relevant to you. 

The overriding theme of the book is that despite the differing trading approaches of the traders, each one has similar underlying principles. These are easy to grasp as each trader makes repeated reference to what they feel made them into the traders they are today. The book is written by active traders which gives a real credibility to the content you are reading. It is also riddled with trading psychology and ‘the trader’s mindset’ which means the reader with the ability to spot weaknesses in their own psychological makeup will be able to replace these with the strengths described by these successful traders.

I recommend this book as it provides a well rounded guide to what is required to become a successful trader. It obviously focuses on discipline and familiarity with the markets, but also provides an analysis and evaluation of a range of trading approaches and underlines a series of essential psychological rules.

It’s Elliott Wave Stupid!

This week we would like to set the record straight on a form of technical analysis some of you may have encountered known as Elliot Wave.  Although a very common tool used by technical analysts, Elliott Wave is unfortunately also commonly misused as many analysts fail to adhere to all of the rules set out by both its creator and it's most prominent experts.  (more...)

The EuroStoxx pushed higher yesterday. The market broke back through the 2900 handle, closing around the 2912-16 level by the end of the day. The move away from the daily double bottom at the 2851-56 level would suggest that the market has rebuilt a base from which it can now push

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The FTSE saw volatile range bound trade yesterday. The market consolidated the sell-off seen on Friday, holding above the 5650.0 handle. The market found resistance on the day around the important 5702.0-04.0 level. A move back above this level may then become the catalyst (more...)

Way of the Turtle

The Turtle experiment which forms the subject of this enlightening book began as a bet between trading gurus Richard Dennis and William Eckhardt over 20 years ago. Dennis’s hypothesis, in contrast to his colleague’s, was that he could transform almost anyone into a winning trader. (more...)

The attainment of elite performance levels in many pursuits involves attention to detail. Trading, like sport, requires an obsessive ability to identify those areas where you can make minor adjustments to gain an advantage over your competition. By improving a wide variety of skills by even small amounts, performance can be improved dramatically. It is often outstanding to witness the obsessive attention to detail Futex traders employ in their tireless pursuit of trading excellence. Whether it is employing multiple squawk services simultaneously to gain a few seconds advantage or the identification of intricate cross-market correlations at specific times of the day, our traders are always striving to improve. This ethos is one into which our new traders are introduced during their training with the Academy and which they are encouraged to embrace. (more...)

The unequivocal objective of Futex Academy is to train individuals to trade futures consistently profitably. Synonymous with performance consistency is a trading approach that emphasises control and effective decision making at times of extreme emotional and market pressure. As we head towards the release of the monthly U.S. Employment Situation report from the Bureau of Labor Statistics, it is an ideal time to highlight how and why we employ this clear aim. (more...)

Welcome to November’s Futures Masters - Interviews with Futex Academy’s elite traders. This month, Futex Managing Director Mark Rossi discusses the industry and how to succeed in trading. Mark Rossi has been a futures trader since 1993. He has been Managing Director of Futex since 1995 and is a partner in Futex Investment and Trading Academy. (more...)