Everybody knows that when the forex market opens there is often a gap. But actually there are small gaps between the candles all day long. Lets see if those gaps are actually telling us something useful. First of all let visualize those tiny gaps. So first of all here is an indicator that does exactly that.
The code for the new version of dealbook or prostation. If somebody wants the code for the old version just ask for it in the comments and it will be added.
indicator gap_ind;
/*written by ctlprogrammer*/
/*Warning for demonstration purpose only, no live trading please*/
/*you can freely copy the code but plz leave this header*/
input period=30;
draw gaphisto("histo",histogram,red);
begin
integer i,j,p;
number gapp;
series gap,zero;
integer f := front(close)+1;
integer b := back(close);
bool highdetect;
p:=period;
for j:=0 to p do
begin
gap[j]:=0;
zero[j]:=0;
end;
for i:=f+p to b do
begin
if open[i]>close[i-1] then gapp:=gapp+open[i]-close[i-1];
if open[i]<close[i-1] then gapp:=gapp-close[i-1]+open[i];
gap[i]:=gapp;
zero:=ema(gap,period);
gaphisto[i]:=gap[i]-zero[i];
end;
end.
On a 1 min chart with period 30 this gives us the following.
In an uptrend tiny gaps up are normal. In a downtrend the opposite so tiny gaps down. Do you see anything useful on the above screen shot? Actually their is something real interesting. Let us enlarge it and explain.
Lets see another way this indicator can be used. A screenshot of the 5 min chart will make it clear. You see how in the middle of the day, out of nowhere we had a 5 pips gap up. Traders who scalped on the closure of the gap made a great trade.
Another example. See how the indicator was showing lots of gaps down while the pair was moving pretty flat. This is not normal when a currency is moving sideways. The drop after did not come as a total surprise!
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