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If you’ve been a crypto investor or traded Bitcoin at all during 2019, chances are you’ve heard repeated discussion surrounding the “gaps” on Bitcoin futures charts offered by the Chicago Mercantile Exchange.
But what are gaps? And are these gaps nothing more than hype, or is the validity in taking trades based on the location of these gaps? One crypto analyst has set out to find out and has done a deep dive into the statistics of CME futures gaps and their correlation in the crypto market.
Cryptocurrencies are an always-on, 24/7, 365 days a year market. However, traditional trading desks like CME Group offer weekday trading sessions. If Bitcoin makes a powerful weekend move, and it often does as liquidity tends to be the lowest on weekends while traders are away from their desks, it can leave a gap between Friday’s late evening close and Monday’s morning open.
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Gaps commonly appear on the price charts of financial assets, when the asset’s price deviates significantly from a trading period’s close to when trading resumes. Gaps are even more common in speculative assets where extreme emotions like fear or exuberance can push the price higher or lower than normal market fluctuations.
Bitcoin CME futures gaps have become a sort of a meme across the cryptocurrency industry, with many analysts balking at any claims of validity, while others swear by the trading strategy – and set orders near where gaps need to be filled.
Bitcoin CME Weekend Gaps: An analysis of them
Let's make a thread about CME weekends gaps
I will analyze:
*What are gaps?
*How to trade them
*Are they a profitable trade?
— The Whisky Guy (@TheWhiskyGuy) December 5, 2019
One particular cryptocurrency analyst decided to get to the bottom of if CME gaps were a helpful tool to assist traders with taking positions or predicting price movements, or if they are nothing more than a meme.
The analyst says that not all gaps are filled, and some take weeks before closing, however, as much as 95% of the gaps analyzed eventually were filled.
Taking the data a few steps further, the analyst found that over 50% of Bitcoin CME futures gaps were filled on the day of the new trading session open, with 30% of the remaining gaps filled later during that week’s session. Fewer and fewer gaps are closed the further the time goes by.
The largest gap on the chart was a $1,085 price move or 12.47% of Bitcoin’s price at the time, and the smallest gap was just $5. The average gap difference was $225, or 2.87%.
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The data is certainly encouraging that there’s correlation for Bitcoin traders to take advantage of, however, the analyst says that had each of the 100 gaps analyzed had been traded, the trades would have been stopped out 53 out of 100 times, making the strategy a losing one, even despite the 95% certainty in which gaps are filled.