Gap trading occurs when a significant market event takes place, resulting in a gap in price at the opening of the market in the following week. Fridays are often regarded with a mysterious aura in trading, but is that really the case?
Traders often avoid trading on Fridays due to concerns about gap trading. This is because Friday is the last working day of the week, and the market will be closed. Any market events that occur on Friday will not be immediately reflected in prices because the market is closed, potentially leading to price gaps at the opening of the market in the following week.
Gap trading is considered daunting because of its uncertain effects. Gap trading happens due to impactful market events, such as economic or political news, but not all effects of these events can be absorbed by the market on the same day. Thus, when the market opens at the beginning of the next week, price differences occur, creating a gap.
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Although gap trading can sometimes yield profits if utilized correctly, there are still risks to consider. Gaps that support your trading position can be beneficial, but conversely, gaps that go against your position can result in significant losses.
The best solution to address gap trading is to find a middle ground. You can avoid gaps by closing positions before the market closes at the end of the week or by protecting positions with Stop Loss orders. Alternatively, you can also look for gap trading opportunities by placing pending orders before the market closes at the end of the week.
So, although Fridays are often considered mysterious days in trading, with the right understanding of gap trading and the implementation of suitable strategies, you can still trade safely and avoid unnecessary risks. Thus, there's no reason to label Fridays as mysterious days for trading if you have mastered how to manage gap trading effectively.
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