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FX spot and swap market liquidity spillovers. PDF full text 2,kb.
Gaps give an idea of market sentiment
Focus Liquidity conditions in the foreign exchange FX spot market can be affected by liquidity dislocations in FX swaps. In order to enter long in this situation, we need to see the price reversing back up from the support zone, and as soon as a candle closes above it, we can enter in the direction of the gap. However, before entering we need to have predetermined our stop-loss level and profit target. As for the profit target, you should aim to reach the gaps high. Check out the example below.
We then switch back to the minute chart to more accurately determine support and resistance levels, as well as our entry point, stop loss and profit target. It is visualized below. After a major sell-off during the previous days US session the market entered a tight trading range which extended through the Asian trading hours. As the European session began, the market gapped down at 1 and penetrated the major support area of 1. This set the stage for a possible short entry in line with the general trend , if the gap gets filled later. And so it did at 2. As soon as the price retraced back to the support area, we wanted to see if it will switch roles and act as a resistance, like it did.
FX spot and swap market liquidity spillovers
Next, we waited for the formation of a definitive reversal bar, on which we can base our entry. Bar 3 was the first bearish bar which reversed the prior four bull trend bars and so it seemed like a suitable enough entry point, thus we went short below its low. Alternatively, we could have waited for a stronger bear trend bar as a reversal confirmation and the top-shaved bar 4 acted as such. Our profit target is the gaps swing low, as marked by the green horizontal line, while our stop loss must be placed above a recent major resistance area pips above the 1.
Later on our profit target is reached, rendering the trade successful. Trading Failed Breakouts at Session Open ». Lot Size. The level of buying or selling volume at one moment can suddenly change. The liquidity provider should meet high standards. It must be stable, trusted and must have depth across multi-asset instruments.
The crucial feature is also fast and reliable trade execution. Liquidity is the ultimate factor any broker or white label need to look for. Choosing good and reliable liquidity provider should be the main step for creating a new fx business.
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