Hi PaulB, thanks. I suspect quite a few people battled the EU this week and lost - I certainly did.
It reminds me of my younger days when I was a surfer. The fact that the ocean serves us up waves to surf is a thing of beauty, but if you think about the power that delivers those waves - that it takes usually 1000's of kms of swell building to deliver decent waves - you then come to the realisation that being able to surf with skill does not equate to mastering the power of the ocean. Rather, it pays to remember its power is so overwhleming that really it lets us exploit infinitessimally small amounts of its energy but it has the capability to completely wipe us out (i.e. kill us) in the blink of an eye.
The EU's strength this week reminded me of that.
Anyway, some more data crunching on gaps, this time the AJ and AC:
Note the following:
1. All gaps closed on the AC - as with the AU and EU.
2. One gap remains open on the AJ - but is trending towards its close and came within 60-odd pips of doing so on Friday - should close next week I think.
3. If that AJ gap does close then that means 100% of 4 x 37 = 148 gaps surveyed have closed, with the additional exception this week of that EU gap. Based on stats like that, you would have to say there is a very high probability that EU gap will eventually close - it is by no means the largest gap in the data set yet.
4. I've included some additional stats on the bopttom of the AJ and AC tables. The % of initial gaps above the "tradeable threshold" of 20 pips is in the 40-50% range. Checking back on the AU and EU, the % is in that range too. Additionally, I've included the % of max swing distance away from gap open, and that is in the 70-80% range for all 4 data sets, while 38-48% of gaps extend out to 50 pips or more before closing.
5. Combining the stats from all 4 data sets, while the % of initial gap opens are above 20 pips, consistently all average around 22-27 pips, which means some larger gap sizes makes up for the lower than 50% rate of opening above that threshold.
I'll do another couple of pairs each week for the next few weeks until I complete the data for all the pairs I look at most (those involving AUD, CHF, EUR, GBP, JPY and USD). I intend to keep the data sets updated so if there's interest I can post updates perhaps monthly or quarterly.
Having thought a bit more about Lighthouse's comment, which was an excellent point, I am now convinced that there are at least 3 tradeable aspects to the Monday gaps, not just 1:
1. The initial monday gap open, looking for those that close within 1-3 days.
2. Observing those that don't close within the 1st day presents an opportunity to watch for the change in trend that will lead to the gap close to trade the max swing distance, whether those of around 50+ pips in the 1st 3 days, or those much larger ones that open out much further.
3. In terms of those "ultra large" swings, I think of most important thing to note is that while swings might go out several hundred (or even 1000+) pips, once a turn in the trend occurs given that the data shows 100% of gaps eventually close (although I would still not leave initially positions open, personally), gaps at 100% closure rate provide by far the most reliable measured distance target point to set a trade for, in comparison to S & R levels, or speed angles, or other methods.
Notwithstanding all the above and the data I've posted on the AU and EU in earlier posts, I must emphasise that while this data set is pretty convincing, it represents only 4 fx pairs out of many, and the data only goes back to the start of this year. Therefore it is worth bearing in mind that more extensive data analysis could still identify that gaps dont close at a rate of 100%, so beware.
