Monday's Window Opening (Gap) Trade: A Surefire Strategy to Capture Market "Distortions"

FX basically operates around the clock, but because markets around the world close on weekends, the price gap or “gap” between the previous week’s close and the current week’s open frequently appears on Monday at the start of the week.

While this phenomenon occurs every day in stocks and futures, in FX it is a special “cluster of expectations” that comes only once a week.

75% proven edge of “gap filling”

In a test conducted over the last 10 years targeting USD/JPY, entering in the opposite direction of the gap opening on Monday morning (taking a position in the direction of filling the gap) has been confirmed to fill the gap with a high probability of 75%.

Behind this anomaly is market structure and demand-supply imbalances, where risk-averse actions accumulated over the weekend (mainly yen buying) are resolved (reversed) abruptly as the week starts without significant turmoil.

Gaps Down are the “golden buying” opportunity

Of particular note is the scenario where a “gap down” starts well below the Friday close.

According to data, in this case the upward bias is very strong, and not only does the gap get filled, but it tends to recover in a V shape. The energy of turning weekend anxiety into Monday’s relief is tremendous, and leveraging this strong inertia is a highly efficient strategy for systematic traders.

Key to success is “infrastructure” and “discipline”

The biggest enemy in executing this strategy is the FX broker’s “trading start time.” Many brokers open at 7 a.m., by which time the gaps have often already been filled.

Therefore, it is essential to use an account that allows trading from 4 a.m. on Monday mornings, such as Saxo Bank, and strike while rivals are still asleep.

“When the gap opens, proceed calmly according to the rules, like brushing your teeth.”

Discard your own market view, and the courage to keep betting on this statistical fact (the gap) is a solid first step toward turning a bank account into an ATM.

Never miss the weekly chance to “pick up money that’s fallen”

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