By eliminating the effect of the overnight gap, the Gapless EMA transitions smoothly between the previous close and the current open. Instead of waiting for the lookback period to eliminate a gap from its calculation, the Gapless EMA can be used immediately because it automatically adjusts to any overnight gap. Other than the below description, you may also review our Gapless Indicator Spotlight (with video).
Indicator Description
The Gapless EMA is used for instruments and session templates that have a price gap between yesterday’s close and the current open. Overnight gaps occur with instruments that do not have an overnight trading session. For example, the FDAX benchmark index for the Germany equity market is closed from 10:00 PM until 8:00 AM local time. Therefore, significant fluctuations in Asian markets may create price gaps that reflect the overnight price action.
Likewise, gaps will appear if you use a session template that only displays the regular trading session. The CME US Index Futures RTH template will only show price data from 8:30 AM to 3:15 PM Central Time. Therefore, any significant price moves that occurred overnight, will create a price gap.
This is an issue for the traditional EMA indicator because the gap is part of the lookback period. Therefore, at the session start, you’ll have to wait until the gap is eliminated from the lookback data. Only when the gap is no longer part of the calculation, you may use the indicator plots.
Specifically, the moving average used in the Gapless EMA, measures the difference between the prior day close and yesterday’s last indicator plot, transferring it to the current open. Other than adjusting for the overnight gap, the indicator also comes with an option to reset the calculation to start at the current open.
Other Library Indicator
In addition to the Gapless EMA, the library also features the Gapless Keltner Channel, Gapless MACD, Gapless SMA, Gapless TEMA, Gapless WMA and the Gapless ZLEMA. Finally, we discussed the general application of Gapless Indicators in our Indicator Spotlight newsletter.
The Gapless EMA indicator is available for NinjaTrader 8.
