Sunday open gaps: the gap isn't always where the chart says

[Shadow Trader]

Weekend gaps look simple. Friday close, Sunday open, a gap in between. In practice, the first few minutes of the Sunday session are a patchwork. Different brokers open at slightly different times, and the first quotes are often indicative rather than executable.

A chart might show a gap of 12 pips, while the actual tradable price a minute later is already back inside 5. The early bars are built from a handful of ticks, sometimes from only one liquidity provider, and those ticks can be a long way from where the market settles.

Two things tend to happen. First, stops placed over the weekend get filled at the first print, which may be the worst price of the entire session. Second, anyone trying to fade the gap sees a spread so wide that the "edge" is eaten before the trade starts.

Worth noticing: the quality of the first ten minutes differs by broker, not just by pair. Some wait until a minimum number of providers are quoting before enabling trading. Others open the floodgates immediately.

The cleanest approach for scalping is usually to do nothing until spreads settle, but that leaves the question of how long to wait, and nobody seems to agree.

A way to approach it without gambling: mark Friday's closing bid and ask separately, because the Sunday open is built around the ask on one side and the bid on the other. Then watch how many liquidity providers appear in the first quarter hour. A thin first quarter hour with a wide spread tells a different story than a Sunday open that settles within sixty seconds.

Gap fills are another folk habit. Plenty of gaps do close, but the timing is wildly uneven. A gap can close in ten minutes or stay open for a month, so a trade built on the idea needs a plan for the long tail. Since the cost of being wrong on a thin Sunday quote is high, many experienced traders skip the first hour altogether and treat the later London open as the real start of the week.

How long after the Sunday open does it take for spreads to look sane on the pairs traded here?