Finding support and resistance area using gaps

Sometimes, due to events that are difficult to forecast and that are happening when markets are closed a phenomena called gaps appears and they are being interpreted in different ways by traders.

A gap occurs, especially on the currency markets, during weekends as otherwise these markets are opened 24/5 and only over the weekend it is the possibility that something unexpected might happen (like it was the case with the Cyprus banks almost one year back in time now).

Under the Western approach, a gap should always close in the sense that the void between candles should always be filled. However, there is a another approach to technical analysis and that one comes from Japan.

Under the Japanese approach, a gap is called “window” and the funny thing is the fact that is considered to be a continuation pattern, meaning price should continue in the direction pointed by the gap.

Trading binary options allows the trader to take advantage of moves markets make and allowing one to have a nice return (most of the times bigger than 80%) even with markets not moving that much. In the end, you only need price to be bigger/lower than the striking price for your call/put option to expire in the money and the difference can be as small as 1 pip. Therefore, finding areas for support and resistance, or where price is to find support and resistance, is extremely important.

This can be done using gaps as under the Japanese approach gaps are offering strong support/resistance level from the moment that they appear. This areas are being given by gap’s edges and the bigger the gap the stronger the support/resistance area is.

The recordings that come with this mini-educational series show how to measure a gap (looking only for the void between the candles) and how to project those areas further on the right side of the chart.

Basically every gap has two support/resistance areas and by the time they are cleared are becoming resistance/support instead and it is important to choose the expiration date accordingly taking into account which support/resistance is broken.

One more important thing to consider is the fact that the time frame here doesn’t really matter in the sense that a gap is a gap and will have the same edges regardless if it is being viewed on the hourly chart or the daily one.

More details to be found on the four recordings that are coming with this educational series regarding how to find strong support/resistance areas using gaps.