What's the Probability of Forex Price Gaps?

January 25th, 2017, 03:28 PM

Hello,

I've been out of trading for awhile. Even when I did do it, there was very little exposure to it. Before getting back into it, hopefully with a little more gusto, I have a few questions to determine risk and the best money management:

1. What's the chance that a price gap occurs in Forex between Sunday's market open and Friday's market close in Forex?
2. Has anyone ever experienced a stop not being triggered because of a price gap during Forex regular trading hours?
3. Are price gaps common from between Sunday's market open and Friday's market close in Forex?
4. Are there ever large price gaps that occur between Sunday's market open and Friday's market close in Forex?

Any response and any further insight pertaining to Forex price gaps is greatly appreciated.

January 25th, 2017, 05:18 PM

I don't trade Forex, and I don't have these statistics. One thing to keep in mind though when we talk about statistics is that there are 2 uses of statistics: to describe previous behavior "descriptive statistics" and to make inferences about the future, "predictive statistics". System developers and traders use statistics to weight possibilities of future behavior and often with good results but one should understand that such results can have a temporal nature to them because the markets are not "statistically well-behaved" in nature.

One verification you can use to determine how valid the statistics are would be to create a rolling histogram/graph of whatever properties you are interested in which would give you some range of probabilities and more importantly allow you to see how those probabilities change over time.

As far as risk, there have been quite a few Forex "black swan" events:

* Jan 15th, 2015 Swiss depeg CHF.
* 2016 Brexit EUR/GBP?
* Sure there are others..
* In theory any of these events could have happened at any time, so you might want to take the largest single day drawdown as a base-line. On the other hand, if such an event is a multi-standard deviation event then you might want to exclude it. Certainly events like the Swiss action on CHF should scare any trader.

January 27th, 2017, 12:45 AM

tpredictor,

That's exactly what I needed to see... a max risk scenario. The unpegged CHF is a potential account obliterator and very discouraging.
After reading your post I saw forums talk about it wiping out many accounts. One guy indicated that he had a margin call. His account was at -$142,000. You can be making money for years and then BOOM!!!
How can anyone protect themselves from something like that?

In any event, great suggestions, but I'd be scared to go passed one contract with such risk looming. Much thanks for the information though.

What's the Probability of Forex Price Gaps?

Discussion in Psychology and Money Management

What's the Probability of Forex Price Gaps?