G'day folks, I'm back again and I see there's a few thumbs for the last table I put up so that's encouraging. As indicated in that post I've gone back further in time on the AU to the start of the year, and the table now looks as follows:
I've also now included that measurement of the maximum distance price moves away from the gap (the Saturday closing price to be specific) to show how price can move before it swings back to close the gap.
What is quite clear is the following:
1. Every gap still eventually closes, the longest taking almost 3 weeks (268 hours).
2. The average gap size is 23 pips, but the average maximum swing away from the opening of the gap is 60 pips, with several 100+ pip moves before gap closure and one of 356 pips.
3. There is a good correlation between the time it takes to close a gap and the size of the swing away from the gap opening before it swings back to close. Basically any gap that is open for 72 hours or longer ends up having some big swings away before returning to close.
4. There is no real correlation I can see between initial gap size and the time it takes to close the gap. Some big initial gaps close within a day, but several stay open quite a long time.
5. Roughly 80% or 4 in 5 gaps close at least partially (60+% of gap size) within 48 hours.
I'll be doing data on other currency pairs in the coming days, but I do hope to see that data confirm that100% of gaps eventually close. This would allow a significant shift in trade strategy imo, where the use of stops may be unnecessary and instead I see the potential to place opposing trades to (a) limit initial position risk while at the same time (b) taking advantage of both sides of the swing away from the gap opening.
Something to try in coming weeks...
Cheers all, Sharks.
PS: For the purpose of clarity, where I've had to use daily data to obtain gap positions and max away positions, I've used the high or low of the relevant daily candle to measure the max movement away from the gap opening. This may not always be the case, depending on which direction price moves between daily opening and closing.
PPS: Also, the data is from IG, so be aware that there may be some difference to actual market prices.
