What are Market Gaps?
Market gaps are areas where the price skipped and did not trade.
A market trading upwards may skip an area on the chart and the next candlestick opens higher than the close and highest high of the previous, leaving a gap up.
In a similar manner, a market trading downwards may skip an area on the chart so that the next candlestick opens lower than the close and lowest low of the previous, leaving a gap down.
There are several types of market gaps.
Basically, gap ups are market gaps that occur where the price opens higher than the close and high of the previous candlestick.
Gap downs, however, occur where the price opens lower than the close and low of the previous candlestick.
Those are not the only types of market gaps that exist. There is a finer categorization of market gaps which includes:
- Exhaustion gaps.
- Continuation gaps or Runaway gaps.
- Breakaway gaps.
- Common gaps.
Now, the focus of this post will be on Continuation or Runaway gaps.
To remind yourself about the other three, you can read the post ‘How to Make Money Trading the Olymp Trade Trading Gaps’.
What are Continuation or Runaway Gaps?
Continuation gaps, just as the name suggests, are market gaps that point towards the continuation of a particular trend in the same direction as the direction of the gap.
The term ‘runaway’ also suggests the same thing as a continuation, meaning that the price will run away from the gap in the direction the trend was before the occurrence of the gap.
What all that suggests is that runaway gaps always occur in the middle of a trend.
Once they occur, they show that the trend is not yet exhausted and may continue for a while, hence a trading opportunity in the direction of the incumbent trend.
Runaway gaps occur on both uptrends and downtrends.
Runaway gaps on uptrends occur upwards reinforcing the uptrend and may be referred to as runaway gap ups.
On the contrary, runaway gaps on downtrends occur downwards endorsing the downtrend, and they may take the name runaway gap downs.
What causes runaway gaps?
All market gaps occur due to sudden events such as news releases and other factors.
If the factors are injected when the market is in the middle of a trend and incline towards endorsing the current market trend, then runaway gaps occur.
Are you wondering how you can make up to $100 a day trading in Olymp Trade with this trading method?
Well, there are many strategies you can apply, and trade the continuation. The runaway gaps is among the best to go for.
In this post, I will show you how to make up to $100 a day trading the continuation with runaway gaps in Olymp Trade.
Making up to $100 a Day Trading the Continuation with Runaway Gaps in Olymp Trade.
So how can you leverage the runaway gap set up to make up to $100 a day trading in Olymp Trade?
I will give you all the details in the next few paragraphs. Ready for the strategy?
Here are the simple steps you should follow:
Observe the Market Structure.
Usually, market pullbacks or retracements are the ones used to point towards trend continuation.
However, such pullbacks need to be minimal and not significant in a market where we hunt for runaway gaps.
I would then say that runaway gaps should be mutually exclusive to many and significant retracements of the market.
Runaway gaps are sufficient to signal a trend continuation without the need for a pullback.
Where marked retracements occur, they may fill the market gap which is not a favorable thing as we shall come to see in setting up the Stop Loss Orders for your trades.
So what then?
Observe the market to make sure it is free of significant pullbacks and trending in a particular direction, not sideways.
If that is met, then proceed to the next step.
Establish the Market Trend.
For this strategy, the market should be trending in a particular direction. Avoid markets trending sideways like a plague. Go for markets trending upwards or downwards with consistency.
So are you wondering how you will establish the market trend?
Stay calm, I’ll reveal all that to you right here.
Before we proceed though, note that the trend upward or downwards should not be weak but healthy or strong. Weak trends can reverse unannounced.
To establish whether the market is trending weakly, healthily, or strongly, apply two moving averages – MA 20 and MA 50. Here are the distinctions:
- Weak Uptrend – the market has steep downward retracements even below MA 50.
- Weak Downtrend – the market shows steep upward retracements that go above MA 50.
- Healthy Uptrend – the market has retracements that do not go below MA 50.
- Healthy Downtrend – the market shows retracements not going above MA 50.
- Strong Uptrend – the market exhibits few retracements not going below MA 20.
- Strong Downtrend – the market shows few retracements which never go above MA 20.
Use the above distinctions to choose markets that show healthy to strong trends. Similarly, use it to avoid markets that show weak trends.
Identify the Runaway gap.
Have you established whether the market is trending healthily to strongly upward or downwards? Then you can watch out for runaway gaps.
If the market is trending healthily or strongly upwards, you expect an upward runaway gap (runaway gap up).
However, if the market is trending healthily or strongly downwards, you should expect a downward runaway gap (runaway gap down).
A runaway gap up is characterized by the price on an uptrend opening higher than the close and highest high of that previous candlestick.
On the contrary, runaway gap downs occur where the price on a downtrend opens lower than the close and the lowest low of that previous candlestick.
Confirm the Signal.
If the runaway gap has just occurred, you need to confirm that it will really cause a trend continuation. Unconfirmed runaway gap signals may not be suitable for trading.
A valid runaway gap up on an uptrend should be:
- Preceded by a rapidly rising price action.
- Accompanied by the absence of downward retracements.
- Accompanied by moderately increased trade volume.
A runaway gap down on a downtrend is valid if it is:
- Preceded by a rapidly falling price action.
- Not accompanied by any upward pullbacks.
- Accompanied by moderately increased trade volume.
Enter Buy or Sell Positions.
Following a confirmed runaway gap up on a strong or healthy uptrend, enter a buy position.
On the other hand, enter a sell position if the runaway gap down on a strong or healthy downtrend is confirmed.
You should time to enter the position just after the close of the candlestick immediately after the gap, in the direction of the trend.
Let it close higher for uptrends-cum-buy trades and close lower for downtrends-cum-sell trades.
Adjust Stop Loss.
For the buy trade, place the Stop Loss at the low of the gap. By the low of the gap, I mean the close or high of the previous candlestick before the price skipped opening higher in the next candlestick.
For the sell trade, however, place the Stop loss at the high of the gap.
The high of the gap is the close or low of the previous candlestick before the price skipped that area to open lower in the next candlestick.
Adjust Take Profit.
Measure the height of the trend before the gap and target equal profits. To be sure though, use a trailing Stop Loss to keep locking in profits in case of an eventuality.
If the trend was strong enough, one position can even earn you over $100 depending on your lot size and leverage.
Otherwise, you only need several such positions and before the day ends, you can make over $100 in Olymp Trade, thanks to the runaway gap strategy.