The London open breakout trading strategy is one of the most popular intraday Forex scalping methods used by traders today. Just as the it sounds, the London breakout strategy revolves around the idea that price breaks out during the open of the London trading session, which occurs at the end of the Asia trading session.
The Asia session is notorious for being a low-volume sideways moving market, and by the time the London session rolls around, trading volume increases drastically, typically caused by the triggering of big orders from large institutions. This leads to a great deal of volatility. The London breakout strategy is ideal for those who prefer to capture intraday profits from small sudden price moves.
First, we want to open a 30-minute to 1-hour chart to find range high and low for the Asian trading session. Once we find this range, we’ll mark it with one of our drawing tools, usually the horizontal line tool is preferred. This range will serve as our take profit and stop loss level.
The most optimal currency pairs to trade using the London breakout strategy are: GBP/USD, EUR/USD, GBP/JPY, EUR/JPY, GBP/AUD, GBP/CAD, EUR/GBP, and EUR/CAD. In the end we’ll want to trade a pair containing the Euro or British Pound.
Many traders also like to add the 50-day SMA to their charts, which can act as a trend filter.
Upon the opening of the London trading session, look at the most recent highest high and lowest low for the previous four candles, they will be the 4, 5, 6, and 7 GMT candlesticks.
If price breaks past the highest high of the four candles we just mentioned, and is also above the 50 SMA, then we’ll place a buy order.
If price violates the lowest low of the four candles, and is below the 50 SMA, we’ll look to place a short.
As a rule of thumb, it’s best to only open one trade per London trading session, assuming you’re only using the breakout technique.
We can open a new trade at any time during the London session, as it will take some currencies some time to get moving, depending on fundamentals.
Pro traders like to set pending orders upon the opening of the London session to avoid having to constantly monitor charts. This is a great way to automate a simple yet powerful strategy.