The market is opened 24 hours a day, five days a week. There are three markets, the Asian, European, and U.S. markets. The Asian market has slowed, while the European and the U.S. markets are living with a lot of turbulence. The largest volume of trading takes place on the markets when London and New York overlap, its time frame is from 8 a.m. – 11 a.m. EST. London’s trading strategy gives special emphasis on the European session in time frame 3 a.m. – 11 a.m. by EST.
During this period, the largest occurring turbulence in exchange rates and in particular of the currency pairs EUR/USD and USD/JPY. This is a time of when publishing strong economic data which affects positively or negatively, the growth rate. If the published data is higher than expected, it will have a positive impact on primary currency. For example, if the trade balance in the Eurozone rose more than expected, exchange rate of the Euro will rise and the dollar will fall. This means that Euro gets stronger against the U.S. dollar.
The London trading session is the biggest forex market mover so whatever the trend direction of GBP/USD during the first 1-3 hrs of London forex session in determines what the trend would be for the remainder of the London fx session. What this means also is that this trend may continue through to the US trading session.
The volumes of trades and the amount of money that moves during the first few hours of the London forex market opening hours are HUGE which creates some exciting trading opportunities. So that explains the background of what and why of the London Breakout Forex Trading Strategy: its all about catching the trendy move to the upside or downside during the early hours of the London market opening.
Where to place your order
Identify the 3 previous candlesticks in the Asian forex trading session. then find the high and the low of these 3 candlesticks because they form your breakout levels. on the highest point of these three candlesticks, draw a horizontal line. If price breaks above this line, its a buy signal. on the lowest price point between these 3 candlesticks, draw another horizontal line. If price breaks below this line, this is your sell signal. See the chart below as this makes clear a lot of the things I wrote above: London Breakout Forex Trading Strategy
How to place your breakout trade orders for the london trading strategy
You need to place two opposite pending orders, a buy stop order and a sell stop order at the same time. Remember, you are aiming to catch a breakout either up or down.
Buy Setup: place buy stop order anywhere from 1-2 pips above the top horizontal line (which is the highest price point of the 3 last asian session trading candlesticks) and its stop loss would be the at least 5 pips below the lower horizontal line. Sell setup: place sell stop order 1-2 pips below the low of the lower horizontal line and your stop loss at least 5 pips above the top horizontal line. Wait for price to activate one of these two pending orders. As soon as one is activated, you need to cancel the other pending order.
How to manage your trade
There are a few options you can use to managing your trade, and whichever you chose, it really up to you: move stop loss to break-even if price moves 2 times what your risked initially. For example, your stop loss is 30 pips so if price moves 60 pips then you move your stop loss to break even. The logic for this? Well, if price moves by the amount risked in pips initially (30 pips in this example) and you move your stop loss to break even, your chances of getting stopped out prematurely are high because you have not given price enough “room” to move. now that you’ve moved your stop loss to break even, that means there’s no more risk on your trade. So next thing you do is use trailing stop to lock in your profits as trade moves in your favour.
There are two ways you can use the trailing stop The first trailing stop technique is by trailing it by “x” pips when price move by “x” pips or some similar variation like, trailing it by “x” pips when price moves by “2x” pips. For example, if price moves by 30 pips, the move trailing stop by 30 pips. Or if price moves by 60 pips then move trailing stop by 30 pips. However, the best trailing stop technique is moving the stop loss behind swing high (or low) point/peaks as price moves in favor the possibility of your trailing stop being hit prematurely is drastically reduced.
How to close your trade
I strongly suggest you follow this here: At the end of the London trading session, you must close your trade.. That’s it! Even if it mean you have a 10 pips profit or a 10 pips loss. Just close it. Never hang on your trade hoping for a few more pips in the US trading session. In forex trading, HOPE and PRAYER has no place, you follow a system. And also remember, there is a thing called tomorrow.
Advantages of the London trading strategy
Is a very simple forex trading system no indicators are required and its a very simple price action trading system its a very easy trading strategy that even a stay-at-home mum or dad can do! all you need to do is draw 2 horizontal lines based on the high and low of the previous 3 candlesticks in Asian Trading Session and they form your breakout levels on where you place your pending orders to catch a breakout.
Disadvantages of the London Trading Strategy
As like all forex trading strategies, this is not a holy grail trading strategy because there will be times when the forex market may not move as expected and this can lead to trading losses. My experience is that, Monday’s and Fridays are the worst days to trade forex as the market usually is slow on Mondays and spikey on Friday’s. You can either trade on these two days or avoid them, its up to you. I’m just saying based on my experience.