Small gaps between one M1 close and the next open

[Fairman]

Small gaps between one M1 close and the next open

On a normal liquid pair during London, the open of one M1 candle is almost always the same price as the close of the one before, or within a fraction of a pip. When you start seeing small gaps between candles, a pip or more on EURUSD, that tells you something about the market at that moment.

Usually it means liquidity is thin. Quotes are jumping rather than stepping, so there is no trade at the in between prices. You see it around news, at rollover, in the first minutes of the Sunday open and sometimes just in a sudden fast move. On a chart those gaps are easy to miss because the candles look normal at a glance. Zoom in and you can see the opens sitting away from the previous closes.

For a scalper this matters because a stop placed inside that kind of market can fill well past where you set it. If the price feed is skipping a pip between candles, it is also skipping pips inside the candles. Your 3 pip stop is effectively a 4 or 5 pip stop until the market fills back in.

I use these mini gaps as a warning light. Several in a row on M1 and I either stay out or cut size until the candles start opening where the last ones closed again.

[Fairman]

Some of this is the broker's feed rather than the market. A broker aggregating from a small number of providers will show more of these jumps than one with a deep pool, and some platforms only send a new tick when the price changes by a minimum step. If you see gaps on one broker's chart that don't appear on another feed for the same minute, the problem is the feed. That still matters for your fills at that broker, but it's a different issue from the whole market being thin. Some brokers even show these gaps more at certain times because their pricing engine throttles updates when activity drops.

[Fairman]

An easy way to measure it is to export M1 data and compute the absolute difference between each open and the prior close. Average it by hour of the day and you'll see a clear profile: tiny during London and the New York overlap, larger in late New York and the early Asian session, and spiking around rollover. That gives you a number for when your pair is liquid enough to scalp tightly, based on your own feed, instead of relying on general advice about sessions. Keep the same broker feed for this, because a different source gives a different profile. Repeat it every few months, since a broker's liquidity setup can change and the hours that used to be clean may not stay that way. It also helps to split the result by weekday, because Mondays and Fridays can look quite different from midweek on some pairs.

[PTScalper]

Hi Fairman,

I think that by this way you will measure volatility, which is important, but for scalping bigger accounts its more important liquidity and slippage.

For example if your average trade size is 0.1 lot, its not big issue, because there is allways enought liquidity, but if your average position starts to be like 5 lots, you will start to realize, that you are making same trades, but entry and exit is like more expensive for about 0.3 pips. Which is like 15$ for open and 15$ for close. In scale of 2000 scalps per month it can be difference like 30k$ from your pocket

Thats why it is important to choose wisely your broker.

I personally have used ic markets for more than 6 years.
It has low spread and as well really good liquidity as you can see on printscreens from my ECN account from EURUSD and XAGUSD.

[PTScalper]

Plus you can imagine, that more risk money you have and bigger positions you will make, its actually more difficult to jump in and out from trade.

[FXS Prop Desk]

Fairman, small gaps between M1 candles are a useful warning sign. They often appear when liquidity thins out, which means market orders might fill worse than the screen suggests. A simple rule could be to avoid new entries when several gaps appear in the last few bars. Logging the gap count per session for a couple of weeks would show how often thin conditions show up at the hours you trade.

[Fairman]

On gold and indices these gaps are far more common, so the rule needs adjusting. A one pip jump on EURUSD is notable. A gap of several cents between minutes on XAUUSD can be completely normal during a busy hour. Measure the normal gap size for each instrument first, then only treat it as a warning when it's well above that baseline. Otherwise you'll be sitting out every gold session for no reason. Indices behave similarly around the cash open, where the first minutes can show sizeable jumps. Knowing the normal gap for each symbol in your watchlist turns a vague feeling about a thin market into a number you can actually check before entering.

[Fairman]

The gaps also tell you how much to trust a level that formed during a thin period. If the high of the Asian session was printed by a candle that gapped up and gapped back down, very little actually traded at that high. It was a quote, not a level with real interest behind it. I'm much less confident trading off highs and lows made under those conditions than ones built during a liquid hour with continuous prices. It is also why I don't put much faith in a level drawn off a single spike candle overnight. If you want to use it, wait to see whether price trades around it properly once Europe is active.