Monday, June 22, 2015

Technical Analysis: The gap always closes | Greek central bank Twitter hoax drives confusion

Sometimes the price or exchange rate of a traded security can gap up or down at the open of a trading session. This is quite common in equities, as these markets close every evening. It does not happen that often in Forex, due to the fact that currencies can be traded almost continuously during the week. However, there is always a break over the weekend.

Those traders who do their work by reference to Technical Analysis (TA), have an adage which holds that when such a gap does occur, it will ‘always’ be filled. This is not literally true, of course, and what they are really saying is that the probability of it being filled is high and, provided that good risk control and money management techniques are in place, it is worth trading in the direction that would see such a gap being closed sometime after the open.

Forex trading for the week starts in the Asian session, which corresponds to late afternoon on Sunday GMT. A gap has formed in the EURUSD pair at the last two weekly opens, the latest being Sunday just gone. This was down to news concerning the Greek situation, which breaks very often over the weekend. In each case the gap was, indeed, filled.

There is a corollary to this. The experience shows the very high risks involved in holding an open position over the weekend. When such a gap occurs it has the potential to leap over any Stop-Loss order that is in place, thereby negating whatever risk control the trader has implemented.

Greek central bank Twitter hoax drives confusion

Our attention was drawn to an item on the newswires to the effect that there had been an announcement by the Greek central bank. It turned out to be a statement pointing out that its governor, Yannis Stournara, did not have a Twitter account and could not have been responsible for earlier tweets.

It took a little bit more detective work, and the assistance of the Google translation service (above) to track down what all this was about. It turned out that an Italian journalist had set up a false Twitter account in the name of the Greek central bank governor, and then posted tweets claiming that the Greek issues with the ECB and IMF had been resolved, for once and for all. The journalist later admitted the hoax, but not before the central bank felt it necessary to issue the denial.

As if we did not have enough confusion over Greece.

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