Forex - NZD/JPY has gaps on chart

[Smurf1976]

If I have understood correctly, gaps on charts are supposed to be covered eventually. (Please someone correct me if I'm wrong here!!! (and if I'm wrong about gaps then could you please explain how it works... ).

I know this is a stocks forum but there does seem to be a bit of interest in forex here and I just looked at the NZD/JPY chart and there's a gap around 77.8 on the 20th of june and another one around 77.25 on the 14th of June. The present price is around 78.00.

Whether or not this is a valid trade I'm not really certain since I tend to focus on the long term (months, years) rather than short term with forex but just thought I would alert anyone who is interested. Unfortunately I don't seem to be able to paste a chart from my broker's site. I was looking at a 30 minute chart though.

 

[tech/a]

Smurf.

In reply I'll give the short answer.

Gaps come in a variety of types and it cant be known which type a gap is until further price action confirms it.

Firstly there is the breakaway gap which is an initial gap up or down in price by the market who are falling over themselves to either buy in or get out.

Secondly a common gap where buy and sell price dont alighn and price has to gap to necessitate trade.

Thirdly a Continuation gap which occurs during a move similar to the first gap type but during a move in the same direction as a breakaway gap.

Fourthly an exhaustion gap where price either gaps away with fruatrated sellers or takes a last gasp jump from over zealous buyers.

I havent see this chart but it appears that the gaps you discribe could be (1) and (3).

The BASIC trading rules to be aware of are.
(1) Most gaps PARTIALLY fill before price continues in the direction of the initial gap.This occures in the following 3-4 days.
(2) Gaps that dont fill are veiwed as very strong conviction in the direction of the initial gap.
(3) Not all gaps fill.
(4) Gaps are SHORT TERM analysis tools and once price moves away from the gap by 5 or so ticks in whatever timeframe your trading other factors then in a technical sence have influence over price.


So to your trade.
The gaps may never fill but seem to indicate a continuation rather than a possible corrective move.I would be looking for other supportive pieces of price action in the decision making process.
I'll have a look at the charts/check the Tarots and consult the crystal ball/stick a few needles in my Smurf Doll and get back to you!

tech