Learn how to trade the London breakout strategy and some effective ways to beat the smart money. We bring you a day trading strategy that has been used successfully by our London traders. The London Break Trading Strategy contains secret trading concepts that you can utilize in the Forex market.
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Everyone has heard of ‘breakout trading’. As the term implies, pricing trading strategies seek to identify price movements that “break” out of a predictable range. These ranges can be captured with Bollinger Bands and various technical indicators.
In fact, breakouts are one of the most popular trading strategies out there.
The market price (whether for Forex currencies, futures, stocks, commodities or cryptocurrencies) constantly changes from trends to ranges and vice versa.
And the only way the transition from a range to a trend can happen is if the price breaks out of its range.
Throughout this trading guide, you will learn more about a specific rate known as the London open break strategy.
We are going to reveal some trading secrets to help you implement the breakout technique in your own trading.
First, let me explain what the London open strategy is.
See below:
INDEX
1 What is the London Breakout Strategy?
2 How to define the London trading range
3 Why the London breakout strategy works
4 When to trade the London open strategy
5 How to Trade the Lonon Breakout Strategy
5.1 Rule 1 Defines the London trading range
5.2 Rule 2: an hour before the London open needs to generate the breakout
5.3 Rule 3 Fade the London Open Breakout
5.4 Rule 4 Take profit or ride the trend
5.5 Rule 5 uses a time stop instead of a price stop
6 More examples of London outbreaks
7 The ideal currency pairs for the London Breakout Strategy
8 Final Words – London Trading Strategy
What is the London Breakout Strategy
In simple terms, the London Breakout Strategy 2020 is a day trading strategy that seeks to take advantage of the trading range before the opening session in London.
Because London is in a different time zone, the market opens a few hours before the exchange in New York. This gives traders a unique opportunity to enter new positions.
Among retailers, this is also known as the London dawn strategy.
Trading the open strategy is simple:
- Take a long position above the London trading range
- Take a short position under the London trading range
Basically, this day trading strategy will teach you how to trade the London open.
The London breakout strategy has literally been around for decades.
Smart money used the London Forex session to take advantage of predictable breakout signals.
Nowadays, the secret has been revealed to the masses.
However, retailers still remain in the dark.
Let me explain…
To trade the London open successfully, you need to understand how the price of a security is determined.
The truth about trading is that you need the right approach to implement a trading strategy.
So what can you do about it?
First, read on through the London trade guide.
Our team of industry experts will reveal the missing link to successfully trading the London Opening Series Strategy for Opening Series.
First, let’s learn how to define the London trading range.
Let’s get started!
How to define the London trading range
We are going to look at two methods of defining the London trading range.
The most basic form of establishing the London range is to use the high and the low of the previous trading session, also trading in Asia.
This method takes into account the entire price action since the start of the new trading day.
The benefit that comes with this is that it will help you manage your trading better.
The second method used to define the trading range in London ignores that candlestick and focuses on the closing prices to define the range.
Note * This trading technique works best when used in conjunction with Asian currencies such as the USD/JPY.
This is an unconventional method that has great merit.
Let me explain…
Most of the trading volume takes place in the body of the candle. So, by ignoring the fuses, we keep our focus where the real action is happening.
I’m sure no one told you that!
But there is a tremendous benefit that comes with it.
Namely, you will avoid false breakouts, and secondly, you will enter the market faster with the big boys.
Now that we’ve discussed how to define the London trading range, let’s look at some reasons why the London open is such a powerful tool.
This will give you more confidence in your trading.
When self-doubt and hesitation take over your trading spirit, you will fail as a trader.
Let’s fix it.
See below:
Why the London breakout strategy works
If London opens at 08:00 GMT, you tend to see a lot of early volatility.
This is the case with almost all the major financial centers around the world, but more specifically with the London open and New York. These two trading sessions tend to see the most forex volume.
Consult our Forex Beginner’s Guide for more information on the Forex trading session.
Around this time frame, the big banks and financial institutions start their day.
Everyone has their own needs.
Let me explain…
Much of the operating volume comes from the banks, which are trying to accommodate their corporate clients.
So, inevitably, trading at the London open or the New York open will get you more volatility.
In other words, this is your most important window to trade money.
Because volatility is synonymous with more trading opportunities.
Most of the operating activities will be compressed within this time frame. If you miss your entries and a trend emerges in the London opening range, the market will not give you a second chance to start back into the trend.
That’s why the foreign trade strategy in London is so powerful.
Be sure to monitor the first hour after the opening of the trading session in London.
If you want to take on the market with smart money, this is a good starting point.
Our experts did a very strict London breakout strategy and found the perfect time window to trade money. Be sure to act quickly as the window of opportunity is very limited.
When to trade the London open strategy
The ideal time window to trade the London open strategy is one hour before the open and one hour after the open in London. You basically have a 2 hour window of trading opportunities.
You are only required to be there before 07:00 to 08:00 GMT and before 08:00 to 09:00 GM.
Our backtesting results revealed that the 1 hour before the London open is just as relevant as the 1 hour after the London open
The volatility will most of the time start to pick up 30 minutes before the London opening.
Our favorite London trading setup to trade is actually when the market starts to move before the London open.
There are many ways to skin a cat, but you have a proven backtesting method you can rely on, otherwise you’re just guessing.
While we’re going to prove it to you, our London setup has an edge.
The foundation of trading the London dawn strategy profitably is to trade against the crowd.
After all, it is a known fact that 95% of all traders lose money.
This statistic has been circling for many years.
What can you do to avoid being part of the statistics?
Simply follow our rules for open trading in London and be part of the 5% elite traders who make money on a constant basis.
See below:
How to Trade the Lonon Breakout Strategy
We trade the London pace strategy by fading the pre-open move.
Our backtest results revealed that we have a very high trade probability on the London Open fade.
Now there is a catch to this.
You need to follow some strict trading rules for the breakout range.
We will not trade every day, but only if the market gives its hand and confirms all our rules.
Otherwise, we can keep the money to fight another day.
Here’s how you can trade the London Open alongside the smart money.
See below:
Line 1 Defines the London trading range
We are going to use the definition of the range that only considers the body of the candles, excluding the fuses.
Note * this trading rule can be adjusted as you become more experienced in reading the price action.
Who knows, maybe you will be able to discover a number of price action trends around the London open that no one could see.
In the GBP/USD chart below, we have outlined the trading area:
The London breakout strategy works because the trading range in Asia tends to buy to a stop above and below the trading range.
The bulk of buy and sell tops become an easy target for smart money.
Remember that traders need liquidity to execute their orders.
And the smart money is always looking for liquidity to fill their big orders. This is why smart money should cause that stop.
following:
Rule 2: the one hour before the London open needs to generate the breakout
Our backtesting results revealed that the momentum really starts to pick up an hour earlier than the London opening session.
There are some smart ways to trade this explosion of momentum.
Let’s look at some technical ways to trade the pre-London open.
We don’t have to guess which way the market will break, we let the market tip its hand and show us the way.
This is where things get interesting.
Let me explain…
During the London session we are going to see the most trading, so the currency market will really have to take off in one direction or another.
From our example we can note the GBP/USD move.
Check out the forex chart below:
We have had no breaks in the momentum activity, and that is the KEY to this entire trade setup.
Now let’s describe the second technical element you want to see with the London setup.
See below:
Rule 3 disappears the London open break
Immediately after the London session opens, we want to see the price fade before the advance move.
If the price movement starts to fade, we know it was a false breakdown
The smart money used the pre-open move to activate the stop below the range and now they reverse the tie and start buying.
We want to see the price pull back to the range at the same speed that it went up.
Let me explain…
In simple words, the bullish momentum used to produce the false breakout must equal the bearish momentum used to fade the pre-open move.
We enter after the first five minutes of confirmation that the price is reversing.
Once this trade setup is complete, you should see a price formation that takes the V shape (or inverted V shape).
Now let’s explore what methods you can use to collect the winnings.
See below:
Rule 4 Take profit or ride the trend
We can measure the volume of the trade in Asia and project that we reach our profit target from the top or bottom of our range.
But often this kind of setup can lead to a trading day that can stretch into the coming days.
Let me prove it to you…
Check out the Forex chart below:
Now, in this case, it is wise if you use other trading tactics so that you can actually profit from this trend.
For more information on this topic, take a look at our latest Trend Trading Strategy – the right side of the market.
In this example, the better strategy for profitability would be to use a trailing stop.
You should be ready to explore other trading methods to manage your trades.
Now…
Protecting the downside is just as important as making money.
Below we are going to reveal how you can use time as your stop loss.
Sound interesting?
So let’s get right into it.
See below:
Rule 5 uses a time stop instead of a price stop
To make the London breakout disappear, you need to use unconventional trading methods.
For this connection, we are going to use a time stop instead of a price stop.
The first time I ever heard of the time stop concept was while reading the Market Wizards book.
Billionaire Hedge Fund manager Paul Tudor Jones, one of the greatest traders of our time, said:
“When I trade, I not only use a price stop, but also use a time stop.”
If you want to get a glimpse into the mindset of the most successful traders and hedge fund managers, please read: Top Trading Quotes of All Time – Learn to Trade.
So, do you want to know how to apply the time stop to the London strategy?
It is very simple…
If in the first hour after the London the price does not COMPLETELY reverse the pre-opening rate, we leave the trade.
It’s simple; no further explanation is necessary.
Let’s explore more examples of London breakdown using our own trading strategy.
See below:
More examples of London Breakout
Now you are probably wondering:
Is foreign strategy in London the Holy Grail?
The short answer is no.
You can’t avoid losses, it’s part of the game. No matter how much you twist a trading strategy, the costs of doing business.
We are going to illustrate a trade example, which will reveal that even when everything matches perfectly, sometimes the trade setup will not work.
First, we establish the London trading range and wait for an open breakout.
Check out the trading example EUR/GBP below:
The open break before London takes place 15 minutes before the open, which is still in line with our London dawn strategy rules.
However, what happens after that is the key.
The trading tube signal from London was activated, but after being already 1 hour into the London session, the trade moved slightly against us. So, we close the trade at a small loss.
Our London Disclosure Rules are designed to minimize the risk of being caught red-handed.
Moving on…
I know you’re going to enjoy the following example of the London lead.
On the USD/JPY chart below, everything is in line with buying the pre-London breakout.
The breakout occurs before the London open, and the move also begins to fade at the same speed as it went down.
You can now notice that after we entered, the USD/JPY pair went straight up.
There is one more element in this London breakout trade that added extra confluence for our signal.
As you can imagine, we are talking about the prevailing upward trend.
Now, with this example, we’ve shown you that you can tip the odds even more in your favor if you bring your own advantage into the mix.
Moving on…
Let’s look at which forex currency pairs to trade using the London break strategy.
See below:
The ideal currency pairs for the London Breakout Strategy
If you really want to kill it with the London breakout trading strategy, you need to know which currency pairs to trade.
Not all currency pairs perform the same with the London breakout strategy. Some currency pairs tend to show better trading signals than others. The best currency pairs to trade the London breakout system are the GBP crosses such as GBP/USD, GBP/JPY and EUR/GBP.
Other currency pairs to trade with the London strategy are the majors EUR/USD, USD/JPY and AUD/USD.
The biggest potential gain comes with the GBP/USD as liquidity is high during the London trading hours as major banks and news activity provide traders with a large amount of volatility.
Final words – strategy for trading London Breakout
In summary, the London breakout strategy can increase the probability of your success in the forex market. Now that we know the technical concepts behind the London open, make sure you only take the setups that match all the rules you expose in this trading guide.
If you keep these three trading documents in mind, you’ll have no problem beating the traders at their own game:
- volatility
- Fading the pre-open bullish/bearish momentum
- Use a time stop loss
If you’re in the US, the bad news is that it’s the middle of the night when the London open takes place. But the good news is that you can profit from the New York Open using the same rules adapted for the New York breakout strategy. In fact, some trading strategies will involve using the London open and the New York open on the same day.
Thanks for reading!
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