| If you use forex charts trading exhaustion gaps can | | | | indicators and look for extremes - like the stochastic |
| be hugely profitable. There one of the most reliable | | | | or the Relative Strength Index and hit a downturn |
| chart patterns to trade if you know how to take | | | | from extremes. You can wait for the gap to be filled |
| advantage of them. They don't come around often in | | | | (checking of course momentum supports your view) |
| forex trading but when they do, there a great | | | | but another way is to top and bottom pick with |
| formation and you can get some great profits. | | | | options. |
| What is a gap? | | | | While forex options are not as popular as they once |
| A gap in a chart is exactly as it sounds: | | | | were, they can be an excellent risk control vehicle, |
| An empty space between one trading period and the | | | | offering you unlimited profit potential combined with |
| previous trading period. | | | | limited risk. |
| They usually form because of an important an event | | | | All you have to do is trade in the money from the |
| or in a market that is dominated by greed and fear. | | | | price you buy your option. |
| They tend to be highly reliable, because they reflect | | | | So hit it at the money and buy 3 months to expiry |
| a highly reliable trait in human nature. | | | | and get time on your side and you can ride out any |
| Short term price spikes never last for long and prices | | | | short term volatility - you don't have to be to fussy |
| tend to return to areas of more realistic value. | | | | about timing your trading signal, so long as you are |
| The above reflects human nature pushing prices too | | | | confident the price spike will fade. |
| far (as they always do) away from fair value and | | | | Exhaustion gaps are one of the best if not best |
| prices return after greed and fear has run its course. | | | | chart formation to trade, as they reflect extreme |
| Exhaustion gaps are marked by high volume, and can | | | | emotions that normally fade within a very short |
| offer tremendous fade trade opportunities, with | | | | period of time. You don't get to many exhaustion |
| excellent profit potential as the tide turns and | | | | gaps in forex, because it's a 24 hour market and |
| momentum shifts quickly. | | | | they really only come over the weekend on the |
| Fact: | | | | open of Far East trading after the weekend. |
| In most cases exhaustion gaps are filled soon after | | | | A Chart Formation for Big Profits |
| they are formed. These emotional price gaps caused | | | | Human nature never changes and short term price |
| by panic and fear provide some excellent trading | | | | spikes will continue to reoccur as greed fear, drive |
| opportunities when looking for a reversal. The | | | | prices. They never last long and if you use gaps and |
| question now is how do you trade them? | | | | exhaustion gaps in particular, you will have one of the |
| There are several options open to you: | | | | most reliable chart formations to trade. |
| One of the best is to look for over bought oversold | | | | |