Bitcoin futures traded on the Chicago Mercantile Exchange (CME), known for creating Bitcoin CME gaps, significantly influence Bitcoin’s price action across major exchanges like Bybit. At Chart Champions, our data highlights how these futures impact market behaviour, making them significant for us as traders.
Incorporating CME Bitcoin into our daily routine has become essential, as understanding their behaviour can greatly enhance our analysis and performance. CME Gaps, in particular, offer valuable insights into market sentiment and direction, which we will explore in depth in this article.
What are Bitcoin CME Gaps?
CME Gaps occur when the price of Bitcoin futures opens at a different level than its previous close, creating a discontinuity on the chart.
For example, we already know that the CME closes at the end of the trading week, but Bitcoin continues trading on weekends on other exchanges. By the time the CME reopened, the price had moved significantly, creating this gap in the chart.
These gaps result from the disparity between the CME’s trading hours and the crypto markets’ continuous operation.
Price gaps frequently act as zones of support or resistance. They also provide valuable clues about market sentiment, allowing us to anticipate potential reversals or continuations.
Don’t worry—even if you’re not trading CME futures, you can extrapolate these zones of support and resistance to other exchanges, such as Binance, Bybit, or any trading platform.
Types of Gaps
CME Gaps align with the broader classification of trading gaps, including breakaway, runaway, and exhaustion gaps. Each type offers unique insights and trading opportunities.
Breakaway Gaps
Breakaway gaps occur at the beginning of a new trend and are typically accompanied by high trading volume. They often form during significant breakouts from consolidation or ranges.
We can view them as strong indicators of directional trends. They rarely fill quickly, making them reliable zones to follow the trend rather than anticipate a reversal.
Runaway Gaps
Also referred to as continuation gaps, Runaway Gaps appear in the middle of an established trend. They confirm that the trend is likely to persist and often indicate that the market has reached the halfway point of its move.
They serve as checkpoints to measure potential price targets and confirm the trend’s strength. Combining Runaway gaps with Fibonacci extensions can provide a clearer picture of where the trend might head next.
Exhaustion Gaps
Exhaustion gaps signal the culmination of a trend. They usually occur near a blow-off top or capitulation bottom and are often accompanied by high volume.
Unlike breakaway and runaway gaps, exhaustion gaps suggest waning momentum and the likelihood of a reversal. We can use them as contrarian signals, preparing to trade against the trend when other reversal indicators align.
How to Trade Bitcoin CME Gaps
Trading gaps require patience, observation and the right tools. Here is how we approach CME gaps at Chart Champions.
Spot the Gap and Understand the Context
The first step is to identify the gap on the CME Bitcoin Futures chart. Gaps are easy to spot and often stand out as black spaces between the closing and opening candles. However, understanding the context is also crucial.
If a gap occurs after a consolidation in a high-volume environment, it’s likely to be a breakaway gap. Generally, these gaps serve as crucial support during an uptrend. While the runaway gap occurs in the middle of a strong trend and indicates that continuation is likely, the exhaustion gaps can indicate potential reversals.
Building a strong strategy for each case will help us better identify crucial market trends and prepare potential scenarios for capitalising on them.
How to Mark Gaps in Bybit Charts
You may have wondered how to mark CME gaps on your Bybit, Binance, Coinbase or other exchange charts. Since gaps only appear on exchanges that close over the weekend, platforms like Bybit do not display these gaps.
Marking CME gaps on your chart is simpler than it seems. Let’s follow these steps:
- Identify the CME Close: The CME futures market closes every Friday at 10 PM UTC. At this time, check the CME chart for the closing price.
- Locate the Price on Bybit: Switch to your Bybit chart and find the price at 10 PM UTC on Friday. Mark this price as the starting point for the potential CME gap. Any significant price movement away from this level over the weekend could create a gap once the market reopens.
- Check the CME reopening: The CME futures market reopens on Sunday at 11 PM UTC. This is essential to confirm if a gap has occurred.
Remember to treat these gaps as zones rather than fixed levels. As the price approaches the marked gap on your Bybit chart, cross-reference it with the CME chart to verify whether it has been filled. Once confirmed, you can use this zone in conjunction with other technical indicators to develop trade setups aligned with your strategy.
Find confluences around the gap price.
Confluences are very important in most trading strategies, and Bitcoin CME gaps are no exception. As always, there is not a unique tool that we can use. Gaps often align with Fibonacci retracement or extension levels, providing reliable reference points for potential price actions.
We can keep it as simple as possible. Depending on the market structure, we can focus on the best support and resistance levels or incorporate anchored VWAPs, Moving Averages, Fibonacci tools, and any other indicator or strategy that suits you best. The idea is to find a confluence to increase the probability of a reaction.
When the market is in an uptrend, bullish opportunities are present when the gap is filled. On the other hand, when the market is in a downtrend, bearish opportunities present when a gap is filled.
Risk Management and Bitcoin CME Gaps
It’s important to understand that CME Gaps will help us build a context for our trades. Our strategy will mostly depend on the confluences we find around these nice support and resistance areas, which increases the probability of a reaction.
Define your entry and exit meticulously, avoiding speculative trades and ensuring clear technical confluence.
A helpful reminder: Practice your patience. Not every gap needs to be traded immediately. Observing how the market interacts with the gap over time can provide better entry and exit points.
Conclusions
Trading CME gaps is not about predicting the future. It’s about preparing for potential scenarios. Whether the gap fills, holds or signals a reversal, we must adapt to market conditions and effectively manage our risk.
Now that you understand how CME Gaps work and how to trade them, it’s time to put this knowledge into practice.
Take your time to spot a gap in the chart and analyse the context. With patience and practice, these will become powerful tools in your trading.
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