In the past decade, a huge growth has been shown by Bitcoin trading. It has introduced several platforms and markets to deliver the increasing demand for cryptocurrencies. Chicago Mercantile Exchange (CME) is a popular player that has offered future contracts for Bitcoin to institutional and retail investors.
What are Bitcoin CME gaps?
Bitcoin CME gaps are defined as the difference between the closing price on a given trading day and the opening price on the subsequent trading day on CME. This functions as a marketplace for several financial derivatives, commodities, and other investment instruments.
Do you know that the cryptocurrency market is open on weekends? However, the traditional markets including CME will be closed on those days. So, obviously, the Friday closing price and Monday opening price will be different.
CME gaps can be calculated by taking the difference between the Friday close price and Monday opening price. In the future, these gaps may appear as support or resistance levels.
Types of gaps
- Common gaps
These gaps are often termed area gaps or trading gaps that happen frequently and also it has filled fastly. These gaps are triggered by normal market forces.
- Breakaway gaps
This gap occurs when the price breaks an already established chart pattern. This appears like a triangle, a wedge, head and shoulder, and cup and handle.
- Runaway gaps
This happens when the price movement skips a laid-out price point. These gaps are triggered by severe interest by investors.
- Exhaustion gaps
This gap happens after a quick rise in the price of an asset over several weeks. This gap symbolizes the end of an upward trend.
How to trade Bitcoin CME group?
A group of traders like to open positions when the price differs from the CME closing price. This is a good strategy in sideways markets, however, it loses its edge when the markets enter a trend. Usually, at this time, CME traders miss out and unfill CME gaps.
If the entering trends depend upon the CME gap, this action should always be performed in conjunction with several other forms of analysis, since the trades are highly dependent on the gap and there is no possibility of yielding positive returns.
Future of Bitcoin trading and CME gaps
Bitcoin trading and CME gaps are constantly evolving along with the cryptocurrency market. There is a possibility of change in the surrounding dynamics of CME gaps with an increase in participants entering the Bitcoin market and CME futures. The size and frequency of gaps could vary with market liquidity and competition. Participants approached CME gaps because of the narrowing of gaps.
As we discussed earlier, CME gaps occur due to the difference in price between the closing price and the opening price. But, when the traders and institutions entering the market increase the price difference may eventually decrease and the gaps become smaller, or the gap may vanish altogether. The launch of new trading strategies and technologies may also influence the CME gap dynamics.
The future is indeed unpredictable, however, the overall sentiment toward Bitcoin and cryptocurrencies remains positive. In the future, there is a possibility of more institutional investors choosing Bitcoin and blockchain technology, if it happens so, the demand for regulated derivatives also upsurges. This can result in further development and innovation in Bitcoin trading.
We can expect a launch of specialized trading firms which is exclusively for the elimination of gaps. Any significant changes and advancements in technology will positively impact the future of CME gaps.
Final verdict
Hope this article helped you with several topics such as Bitcoin, CME gaps, types, how to trade with them, and the future scope. The crypto markets appear differently after the introduction of CME Bitcoin futures contracts. Remember you are not dealing with certainties but with the odds. You can’t predict the CME gap close and also the chances will be less as time goes on. Stay updated on the weekend phenomenon pattern to make trading entry easier.