How Bitcoin CME Gaps Relate to the Crypto Market

Published by Thrillmex on

How Bitcoin CME Gaps Relate to the Crypto Market

In this article we’re going to look at:

  • Who is CME? 
  • What are gaps?
  • How Bitcoin CME gaps relate to the market

Who is CME?

CME is the Chicago Mercantile Exchange & Chicago Board of Trade. They’re a traditional futures, derivatives and options exchange based in Chicago and New York. They are a massive global markets company who have their own CME Globex trading platform.

From their wiki

It has been described by The Economist as “The biggest financial exchange you have never heard of”

To put into perspective how big CME is, its total assets in 2018 ($77.47 billion) are equal to 56% of the entire bitcoin marketcap at time of writing ($137 billion).

What are gaps?

Trading gaps are blank spaces on the chart between two candles.

They occur when a candle opens higher or lower than the previous candle close. The time frame does not matter. Gaps occur on all time frames but are more frequently seen on illiquid markets, or, the daily time frame of some traditional markets that do not trade 24/7, such as the New York Stock Exchange.

For example:

  • NYSE trading times – 09:30 – 16:00 local time.
  • Shanghai Stock exchange trading times – 09:30 – 15:00 local time. Lunch period 11:30 – 13:00.
  • Swiss Exchange trading times – 09:00 – 17:30 local time.
Tesla daily chart with gaps

As you can see on the Tesla daily chart, gaps occur quite frequently. This is because the stock market is closed over night and does not trade during this time.

For example, a gap may occur for Tesla when good news for the company has come out over night and it immediately trades higher when the market opens the next day. This creates a ‘gap’.

The same may happen for bad news. 

NEBL/BTC 15min chart

Gaps however do occur in every market. Here is the NEBL/BTC chart on the 15minute time frame. As you can see it’s full of gaps. Why? Because there is very little volume,  7btc volume traded over the last 24hours at time of writing this. 

This illiquidity and low volume will also create gaps because there’s simply not enough people buying and selling in the market for the price not to gap around. Liquid markets with volume do not create gaps.

Here’s the ETH/USD chart on the 1minute time frame. Even with some volatility, there’s still no gaps. Why? Because there’s enough volume, liquidity and trading participants for prices to trade at every price.

How to find the Bitcoin CME chart?

Go to tradingview.com

  1. In the ‘add symbol’ search box type in ‘BTC1!’
  2. Make sure ‘all’ has been selected
  3. Click ‘BTC1! BITCOIN FUTURES’ chart.
  4. Select the daily time frame to find the gaps.
  5. Done!
daily time frame cme chart how to find it

CME Bitcoin Gaps relationship to the crypto market

Now we know who CME is and what gaps are, lets look at how CME gaps relate to the crypto market.

Why do CME bitcoin gaps occur?

CME bitcoin gaps occur because CME does not trade on weekends. 

They only trade during weekdays, Monday to Friday. So naturally when bitcoin trades over the weekend as it’s a 24/7 market, the price it’s trading on the end of Friday may not be the same as it traded at the start of Monday. This difference in price from the Friday closing price and the Monday opening price will create a gap in the CME chart.

An example of a CME bitcoin trading gap

As a premise, you’ll often hear discussions on gaps and whether they “need to fill” or not. In traditional markets, this is true, not all gaps fill. You’ll also see gaps that do fill and trading strategies built around this concept. 

The reason gaps fill is because the market wants to trade at every price. This is to get as many participants as possible involved into the market, and to do that the market needs to trade at every price. Remember, the market is designed to remove you from your money and the more people participating the better.

Why do CME bitcoin gaps matter?

For Bitcoin a really great recent case study by @TheWhiskyGuy (link to thread here) on twitter was published on CME gaps which I’ll reference in this article. 

95% of gaps fill

As we see from the data that TheWhiskyGuy found, 95% of CME bitcoin gaps fill. 50 of the 95 gaps filled on the opening day and 28 of them that same week.

When looking at the CME bitcoin gaps they DO play a factor into the price action of bitcoin. 

Taking trades based on the CME gaps isn’t profitable. However, given the data that 95% of gaps fill it’s something you should certainly beware of.

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