The London breakout Forex trading strategy is used to trade the London Forex session during the first few hrs (1-3 hrs) when the Forex market opens in London.
Indicators: You do not necessarily need any indicators for The London Day Break Trading Strategy but this Forex trading session mt4 indicator may be helpful.
You also must be able to draw horizontal lines on your Forex chart. And that is a very easy thing to do and you can learn all about horizontal support and resistance here.
Time frame: 1 hr
Currency Pairs: Only GBPUSD
Risk: Set your risk per trade anywhere from 1% to 2% of your trading account.
WHY TRADE THE LONDON SESSION BREAKOUT?
The London trading session is the biggest Forex market mover as much of the trading volume for currency trading is during this session.
What that means is that:
- whatever the trend direction of GBPUSD 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 AND HOW TO PLACE YOUR BREAKOUT ORDERS
The next thing you need to know is where to place your entry order to trade the London breakout.
Here’s how to do that:
- 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:
HOW TO PLACE YOUR BREAKOUT TRADE ORDERS FOR THE LONDON BREAKOUT TRADING
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 trade either up or down….
- 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.
- 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
Here 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.
- Next thing you do is use trailing stop to lock in your profits as trade moves in your favor.
- 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..
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 always tomorrow.
ADVANTAGES OF THE LONDON BREAKOUT FOREX TRADING STRATEGY
- 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 BREAKOUT FOREX STRATEGY
- as usual, 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.
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