How to Trade EUR/USD’s Negative Gap

EUR/USD has gapped lower after French President, Emmanuel Macron called a snap election following shock results of EU parliamentary elections in which far-right parties made strong gains. Let’s take a look at the ways we can trade negative gaps of this nature.

Method 1: Gap and Go

The ‘gap and go’ method of trading price involves taking advantage of the momentum that often follows a gap. EUR/USD’s negative gap has broken below a key level of swing support on the daily candle chart, opening the door for immediate downside continuation.

Traders looking to deploy the gap and go method can use small pullbacks on lower timeframes as potential entry opportunities into a short-term downtrend. However, it is worth noting that the gap and go method best suits breakouts from compression patterns. EUR/USD experienced heavy losses on Friday, which potentially reduces the effectiveness of the gap and go method.

EUR/USD Daily and Hourly Candle Charts: Gap and Go

(Past performance is not a reliable indicator of future results)

Method 2: Gap Fill

The ‘gap fill’ method involves trading with the expectation that the price will return to fill the gap and uses the gap as resistance from which to initiate a short position. The top of EUR/USD’s negative gap coincides with the broken swing support area on the daily candle chart, adding to its significance.

Traders looking to deploy the gap fill method will need to be patient and wait for a small recovery rally in order for EUR/USD to close its gap. Rather than simply entering on the close of the gap, traders can add more precision to their entry by waiting for a bearish reversal pattern to form on lower timeframes in response to the gap close.

EUR/USD Daily and Hourly Candle Charts: Gap Fill

(Past performance is not a reliable indicator of future results)