“London Breakout” Forex Trading Strategy
Forex trading strategy “London breakout” is one strategy that is quite popular in forex. In its development, each trader/analyst who developed this strategy gave a different name, but the concept was the same, namely using the movement ahead of the opening of the London market.
The strategy included in the category of a mechanical trading system is designed to “catch” the rapid movements that occur ahead of the opening of the London market. To be able to use this strategy you need basic skills using MetaTrader, at least drawing boxes and horizontal lines on the chart, plus a few hours monitoring the London session.
I don’t think I need to tell you again that before the London market opened there was already a market in the Asian session that was already running. Usually, the highest market activity is seen in the European session, so with this strategy, we will try to find opportunities based on the price range created during the Asian session.
Actually, you don’t need to use any indicator to run this “London Breakout” forex trading strategy. However, if you can find a “market hour” indicator on the internet or the MetaTrader marketplace, it will be quite helpful. However, the indicator is optional, nothing is a problem. The important thing is you know how to create horizontal boxes and lines in MetaTrader.
So, before entering the London session, you have a price range as a reference formed from the movement in the Asian session. The range in question is actually not the entire Asian session range, but only the last three hours. The most suitable currency pairs for this strategy are GBPUSD, EURUSD, and NZDUSD.
In order to make the explanation easier, I will summarize the strategy as follows:
- Use the time frame
- Make a box on the chart with the last three candlesticks that appear before the London session starts. If you use the MT4 platform trader, the reference candlestick is a candlestick from 07:00 to 09:00 MetaTrader time.
- Based on the above “box”, draw two horizontal lines which each function as support and resistance. This means that you have to draw a horizontal line on the top side of the “box” and another horizontal line on the bottom side of the “box”.
- Place a Stop Order :
- Buy Stop is approximately 5 pips above resistance, place SL at Sell Stop level
- Sell Stop approximately 5 pips below support, place SL at Buy Stop level
- If one Stop Order is executed ( done ), you must immediately delete ( cancel ) the Stop Order that is the opponent. This means that if the Buy Stop is executed, immediately cancel the Sell Stop and vice versa.
The picture below can clarify the strategy I described above:
Advantages and disadvantages
As with other mechanical trading systems, the “London Breakout” forex trading strategy also has advantages and disadvantages.
The advantages are:
- Does not require complicated technical indicators
- Relatively easy to understand and apply
- Pure uses price action, thus reducing the risk of being late in the position
The disadvantages are:
- There is a potential to be “trapped” by bull traps or bear traps
- On Monday or Friday, there are often “unusual” movements, so the opportunities that appear on that day tend to be less accurate.
As always, I advise you to learn and practice this strategy first in a demo account before running it in your real account, because it is not necessarily this strategy is right for you.
Don’t forget, even though using a demo account you still have to treat it like a real account, especially in the case of SL placement. Habit through demo accounts will form good habits as a trader.