How To Trade The London Breakout Strategy For Forex

The London Breakout Strategy is an easy to use trading strategy designed to take advantage of the sudden increase in trading volume that takes place near the London Open.

If you are able to draw a few horizontal lines on your chart and can be awake during the trading hours for the London session, let’s get started on how you can profit from the superior trading opportunity breakouts during the London trading session can be.

What Time Is The London Trading Session

You can see from this chart that the London trading session, as noted by the green arrow, has much higher trading volume than the Asian trading session to the left.  This is 3:00 a.m. Eastern time.

LONDON INCREASE IN TRADING VOLUME

We are looking to take advantage of the range bound market that occurs during the Asian session. The London open should see a spike in trading volume and we want to get involved in a trade during this time.

Now, we don’t know which way the range bound Asian market will breakout during the London session.  What we do know is that when the Forex market opens in London, we will get an increase in trading volume.

The London Breakout Strategy is a momentum trading strategy that uses the coiled up energy from the Asian session.  It’s no different from other Forex breakout strategies in that regard but the difference is “when” we use this particular strategy.

What Do You Need To Trade The Breakout At The London Open

There are no special trading indicators needed to trade the breakout at the London open but we do have a time frame we like to use.

• Time Frame: One hour Forex chart
• Currency Pair: GBPUSD. You can experiment with NZDUSD and EURUSD
• Risk: Use proper risk management
• Indicators: None required. You can use this MT4 indicator that highlights the different trading sessions.

While there may be a few variations of the London Breakout Strategy, this is the simplest version that requires very little of your time.

How To Trade The London Breakout Strategy:  Rules

Since we are usually coming into the London session in a range, we already have an entry point due to that range.

1. the London open, draw a support and resistance line around the last 3 candlesticks that formed in the Asian session for the GBPUSD
2. Place a buy stop order 2-5 pips above the resistance zone
3. Place a sell stop order 2-5 pips below the support zone
4. Once an order is triggered, immediately cancel the other pending order
5. Place your stop loss order in the location of the previous order

How To Manage Your Long Or Short Trade

There are couple of options for managing your trade and here are some suggestions only which you can use or you can decide to come up with your own, its up to you:

• At 1 times your risk, move your stop to break-even.  This is to ensure you do not take a loss on a trade that has shown intent in your desired trade direction
• Use a trailing stop technique by trailing  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
• Use a profit target such as 1-2 ATR or previous support or resistance zones
• Close the trade prior to the U.S. and London trading session overlap

 Asian Session Range Is Too Large

One problem you may face is having too much volatility during the Asian session that has caused a trading range to be “too wide”.  Too wide is subjective but think in terms of ATR.

ASIAN RANGE FOR LONDON BREAKOUT STRATEGY

You can see the difference in ranges on this chart.  Some things to keep in mind when looking to play the breakout of the range:

1. Look for orderly price action
2. Take note of the long shadows.  You may elect to ignore them and just use where the majority of price is contained during the entire Asian range
3. Look for consolidating near either support or resistance as this could tip you off to the probable breakout during the London open

What Are Some Of The Advantages To This Breakout Strategy?

• Simple forex trading system
• No indicators
• This is a price action trading system

Drawbacks To Trading Breakout Of The Open

• You could get caught in a bull or bear trap
• Monday and Friday can cause some odd price action during both the Asian and London session.  Be mindful of the days you will trade

I know some of you will probably want to use some indicator for this trading method.  You don’t really need to but if you are going to, you can download this indicator blueprint for free which will tell you how to use some of the most popular indicators around.