Looking for a great Breakout trading strategy? You can stop right now - this London Breakout Forex Strategy is an easy way to lock in profits from sudden spikes in trading volume!
AtoZ Markets - Today we will be discussing the London Breakout Forex Strategy - one of the most useful and practical breakout trading strategies. This strategy is specifically designed to benefit from a sudden spike of trading volume near the London Open session.
Basics of London Breakout Forex Strategy
The London Session has been created in order to take advantage of the steep spikes in the trading volume near the London Open Session. In order to properly utilize this strategy in your favor, you will need the basic skill to draw horizontal lines and a couple of hours of free time during the London session.
As we know, before the London session, the trading is occurring in the Asian session. Normally, the European session has the highest volume of trading activity in terms of liquidity, price action, and volatility. Thus, we are looking to take advantage of the range-bound market that takes place during the Asian session. As the trading volume will suddenly rise, we want to get involved in the trade during this period.
How London breakout strategy works in the Forex market
If you want something easy to start with, there are strategies that would allow you to do that, but it usually is not a high accuracy strategy. However, it is good enough to begin your forex trading journey, as it could let you make decent profits while learning how to properly analyze charts.
This strategy is one of the easy and simple strategies, but not highly accurate. The concept behind this strategy lies in the crossover of the Asian session and the London session. The London session is known to be the start of strong volatility as London is one of the biggest capital markets in the world. During the London open hours, a sudden spike in volatility occurs causing momentum in the forex market.
Moreover, the beginning of the London session is also the end of the Asian session. Right before the London open, the Asian markets are beginning to close down, square-off their open positions, and avoiding big position trades knowing that the London open’s volatility might affect their positions prior to finding its direction. This causes a tightening of the range just before the London open.
The only thing that goes against this though is the Frankfurt market, which is another big market, opens an hour ahead of London. This causes a minor wave of volatility before the big wave that London brings. It somehow widens the range, making returns a little bit lower. In some cases, if the Frankfurt open caused to wide of a range prior to London open, it is best to stay out of the market as much of the possible move might have already been made by the market.
Best instruments for London breakout FX strategy
The London breakout FX strategy works well on the E-Mini Dow Jones Futures from the Chicago Board of Trade (CBOT.)
This strategy will work well on the following currencies, such as:
- Pound Sterling
- Swiss Franc
- US, UK, and European Futures instruments.
It is always important that you should try it out on a simulated platform before committing any real money to the strategy.
In order to catch the right moves during the London Open, you will not need any specific indicators. However, one thing is strongly recommended – use one-hour Forex chart. Moreover, you will need to use proper risk management techniques. As for the currency pairs, you can focus your attention on GBPUSD, EURUSD, and NZDUSD.
How to trade with London Breakout Forex Strategy?
As we are coming to the London session in a range, we already have an entry point due to that range. In order to trade the London Breakout Forex Strategy, you need to follow the next steps:
- First, you need to draw support and resistance lines around the last 3 candlesticks that have appeared in the Asian session for the pair you are trading (for example, GBPUSD);
- Then, place a buy stop order approximately 2-5 pips above the resistance zone;
- Afterward, place a sell stop order approximately 2-5 pips below the support zone;
- Once the order is active, cancel the other pending order;
- Finally, place your stop loss in the place of the previous order.
Pros and Cons of London Forex Breakout Strategy
- You don't need indicators
- Easy to understand and implement
- A price action trading strategy
- Potential to get caught up in the bear or bull trap
- Might be tricky to trade with this London Breakout Strategy during Monday or Friday. These days tend to bring some odd price action during the market close/open hours.
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This article was updated on 11 September 2019 by Amandeep Sonewane