London Breakout Strategy – Forex Explained
Have you ever heard of the well-known London breakout strategy, but are still unaware of its true meaning? Would you like to know more about it, in order to increase your profits in the long run? Supposing that both of your answers are yes, then, we’d like to introduce you to one of the most popular trading strategies in Forex recently.
First of all, trading in the Forex and stock market can be a very overwhelming challenge for any incomer. Financial managers have been accommodating for any individual who has been eager to invest their funds safely. Nonetheless, what if consumers have the opportunity to go through a go-between?
Let’s see what the London breakout strategy is in order to get the complete picture, shall we?
The definition of the London breakout strategy
Whether you happen to be at the beginning of your Forex trading career or you’ve gained some experience by now, it’s essential to understand the basics of the London breakout strategy. This particular strategy refers to a day trading strategy. It aims to take advantage of the trading range before the opening session of London.
It is also known as the London daybreak strategy that is considered one of the simplest Forex trading strategies that you’ll get the chance to use. Interestingly, this particular daybreak strategy utilizes the increased volume that you will get the opportunity to see during the London trading session.
However, in order to fully understand the London breakout strategy forex, it’s essential to start at the very beginning. Let’s get to the basics of the so-called “London open breakout forex strategy!”
What is the London strategy based on?
Like the name implies, the London breakout strategy is built upon the increased activity during the first hour of trading. The chart time frame that we are using is a one-hour chart. Besides that, a great majority of traders are using candlestick charts since they allow understanding the market’s sentiment to reach the candlestick charts.
Even though it’s not considered a requirement, individuals who understand the candlestick chart patterns can see why such practices can be highly beneficial.
What currency pairs should you use with this particular method?
When it comes to currency pairs for trading, it’s usually the GBP/USD pair. However, one is able to trade some other currency pairs like GBP/JPY, for example, since it’s famous for its high volatility. According to all this, any trader has got plenty of opportunities.
Moreover, since the London breakout strategy is focused primarily on the Asian-London session Forex, it clearly makes sense to consider the GBP/JPY currency pair when using the London breakout trading method.
When does the London trading session start?
In order to explain when this specific type of trading session starts, we’ll take advantage of a GMT+2 or GMT+3 broker. The London trading session begins at 7 AM GMT. According to that fact, the period between 7 AM and 8 AM is precisely the time when you should get ready to trade the markets.
What is the key to the success of the London breakout strategy?
The primary key to the success of the London breakout strategy is relatively easy to explain. A lot of trading volume activity directly comes from banks. It’s a specific way that banks are trying to accommodate their corporate clients in that way.
Therefore, trading at the London or New York open will, undoubtedly, provide you with more volatility. It means that volatility is synonymous with a significant number of trading opportunities. So, it’s the best possible time for you to make money while trading.
Most of the trading activity will be squeezed in this time frame. In case you miss your entries, while the trend from the London opening range breakout emerges, the market is not going to provide you with a second chance to get back into the movement.
And that’s precisely what makes the London breakout strategy forex so powerful. Keep in mind that it’s mandatory for you to monitor the first hour after opening the London trading session. If you’re interested in tackling the market, apace with the smart money, you’ll realize that it’s a great starting point.
How to make the London daybreak strategy more effective?
As we have mentioned before, the London breakout trading system is known as an open system. This means that traders can use a significant number of different methods or indicators to improve this uncomplicated trading system. Some traders prefer using moving averages and trading in the direction of the trend.
On the other hand, perhaps one of the most significant drawbacks of this particular method is that the specific trend you are looking at can be very subjective. In order to make the London breakout strategy more effective one should be patient and wait for a retracement.
It’s the most efficient way to trade the London breakout trading strategy. However, there is only one exception: you are required to wait until the retracement occurs. It may happen anytime during the course of the day.
Keep in mind that this specific method slightly differs from the regular London breakout trading systems. One might witness times with no trades to be made.
The Bottom Line
Perhaps one of the main things to remember while trading the London breakout trading strategy is that it’s not just any breakout trading system. Quite the opposite, it requires you to focus on the prevailing trends. Breakout, as a term, refers to the short-term perspective. It means just a few hours of the Asian trading session close and opening hours of the London session.
According to that, you will be able to see that the extensive trend is up, and you’d get the desire to trade the London breakout trading strategy. Therefore, it’s best for you to trade in the direction of the trend. However, there will be times when you’ll notice price action where the breakout moves in the wrong direction.
In that case, you should stay on the sidelines and wait for a more compelling trading signal from the breakout method.