With the unlimited amount of trading strategies currently available, it sure can be tough to choose the one that is just right. However, we believe that if you take one step at a time approach and get to know the major trading tendencies, you will sort of kill two birds with one stone - choose the best strategy for yourself and become more familiar with the complex world of the currency trading market. Today we will focus on trading the London session with a very profitable breakout strategy and discuss in detail how to trade the London breakout.
What is London breakout strategy pairsFirst off, let’s define what is considered a London breakout and how does it make its way to serving as a foundation for a profitable strategy. London breakout Forex simple trading strategy is based on two major concepts: the beginning of the London market trading session and the increased volatility that usually occurs at the start of a trading day. You probably already know that there are three main centers of traders’ attention - Tokyo, London and New York. These three cities and their respective time zones represent the biggest accumulations of market participants: Asian countries residents, Europeans and Americans. Although it is believed that New York has the biggest influence on the market due to the number of traders, it is actually London that holds the largest piece of the steak. The reason for this is simply geographical - English market is located in the middle between North America and Asia and often overlaps with either one of them. This way, we can easily figure that the profitability of the Forex london session breakout is based on the combination of high liquidity and high volatility. Now, before we go into the technical details of trading the breakout London morning Forex strategy, let’s first take a look at what currency pairs go best with the London session.
What currency pairs to trade for London breakoutIt is safe to assume that since the majority of traders starting their day at London market times are from Britain, the most popular currency pairs are the ones including GBP. And while this is partially true, as GBP pairs are usually the center of attention anyway, we should also remember that London time is overlapping with both the end of New York session and the Beginning of Tokyo session. Which means any highly liquid pair can be traded during London breakout, as the main point here is not the location or time, but the pure amount of interest and action that they provoke. It is also fair to say, however, that the majority of London breakout strategy backtest results still show the most traded pairs as GBP/USD, GBP/JPY, GBP/EUR and EUR/USD.
Trading the London breakoutIt is time we talk about the specifics of trading during London breakout. The first thing to keep in mind is that any volatile market session is best suited to short term intraday traders. Day traders are the ones who benefit the most from the market’s unexpected leaps and therefore fast-paced volatile environment is ideal for them. Most of the activity during the London breakout is built around reacting the the overnight news of the New York market, which in most cases dictates the mood for the day. Based on what happened at the West, traders who choose London time to trade will decide to either continue trading along the occured trends or go in the opposite direction and trade against the grid. Whichever is the scenario, the important part of a trader's success is London Forex open breakout indicator system. Indicators are plenty helpful when it comes to many aspects of technical analysis, however they are absolutely necessary during the times of high activity, as they assist with indicating how true is the ongoing trade and how long is it expected to last. But it is also true that the best London breakout strategy results come from including the fundamental factors in your decision making process, as it is a known fact that technical data can at times be irrational due to the increased level of market sentiment.
As for the setup of your trading process during the Londo breakout, the important aspects to point out are risk to reward ratios as well as some basic risk management techniques. The risk during the majority of highly volatile market conditions should be set as low as 1 percent of your trading capital, and the reward can be roughly twice that amount. So, by going with the basic 1:2 ratio you should be able to take control over the process easily. As for the stops, they should actually be placed according to the highs and lows of the Asian session: several pips above the high for short positions and several pips before low for the long ones. It is also important to mention that the best chart time frame for London breakout is H1 (one hour), as it displays the necessary info at the right range.
How profitable is the London breakout strategyIt is time we address the important question - how profitable is London breakout strategy? And while it is believed to be one of the easiest intraday strategies that usually satisfies most traders with the amount of earned income, it is also fair to mention that your success will depend on a couple of factors. As we have already mentioned briefly, the technical factors should be combined with the fundamental ones for the best results. Ignoring the major news releases might lead the trader in a wrong direction, because sometimes it goes against the flow of the technical data. Then it is always a good idea to learn to read and recognize candlestick chart patterns in order to ace and volume based strategies. Comparing the candlestick charts for related currency pairs, such as USD/JPY and JPY/GBPfor example, might give you a solid understanding of what you will be dealing with today. As well as being familiar with the most common retracement predicting patterns, can give you an opportunity to plan one step ahead. The best news here is that London open strategies are pretty adjustable and you should feel free to play around with your tactics and the settings in order to figure out the most comfortable action plan. Just as with any other strategy, it is always good to do some backtesting and practicing via the demo account, for example.
What are the best Forex pairs for London breakoutLet’s take another go at what currencies you should consider to trade during the London breakout. While there is no single best currency pair for London breakout strategy, you should consider the following two: if you have currency pair preference stick to it and try to always go with the most popular pairs regardless of what strategy you are adopting. As the currencies go in pairs during Forex trading, getting to know the technicalities of trading one currency automatically means getting to know its partner as well. And as you familiarize yourself with those, you will soon start to understand what factors play the biggest role in the value ratio for the chosen pair. Plus, there are specific times and conditions usually associated with each pair and the longer you stay within their range, the better you will get at predicting the upcoming events and acting accordingly. This way the top pairs to trade for London breakout are both the pairs that are at the top anyway and the pairs you are comfortable dealing with.
What is 2 hour London breakout strategyJust before we wrap up, let’s take a moment to discuss a new approach London open breakout trading strategy also known as 2 hour London open strategy. This trading method focuses not at the exact moment of the session’s beginning, but rather on trading after hitting the two hour mark. As we consider the opening of the London session 7 AM GMT, 2 hours later, around 9 AM is when this strategy takes place. The strategy consists of immediately placing two opposite pending orders right after the second hour candlestick closes. One of them is going to be just a few pips above the high and another few pips below the low. As soon as one of those pending orders gets activated, you momentarily cancel the other one. The take profit should be set at around 30 pips, or at your prefered pip target depending on the specifics of your strategy. It is then advised that you let the trade unravel the way it was meant to, without adjusting the stop loss or using trailing stops techniques in order to achieve better results. This Forex London open breakout system with some hedging strategy is considered very straightforward and usually attract a decent amount of trader’s attention due to its simplicity. Some of the advantages of this strategy include: it is easy enough to be used by new traders, it is easily achievable and it only requires one trade per day. While the disadvantages include: limited amount of trades and with it the limited amount of potential earnings as well as some fundamental factors that can play a crucial role in the way the events will progress and cancel out the idea behind this strategy.
As you can see, connecting your trades to the London session open is a good idea in a number of scenarios. Just make sure to get properly prepared and choose a highly liquid currency pair to operate with. Also keep in mind that while increased volatility can be highly profitable, it also requires a certain amount of your undivided attention as well as some risk management precautions. But as long as you master technical analysis techniques, get familiar with the most common chart patterns and remember to cross check with the fundamental analysis reports, you should be able to easily trade during the London breakout and make visible profit from its volatile environment.