London Open Breakout Strategy

London Open Breakout Strategy

London Open Breakout Strategy

The London open breakout strategy is one of the very well known short term or intraday scalping strategy. As the name suggests, the London Open breakout strategy works on the principle of prices breaking out during the London session open which is preceded by the Asian trading session. It is a well known fact that liquidity during the Asian trading session is usually low, especially during periods when there are no major news releases. Due to lack of any major news to go by, and the fact that trading volumes are low during the Asian session, prices tend to move sideways.

By the time the London session opens, trading volumes increase significantly as most of the large institutional orders being to trigger leading to volatility led breakout in prices. The London Open breakout strategy is ideal for traders who are intraday scalpers and focus on capturing a small move in prices rather than having to focus on trends or swing trading. The London Open breakout strategy is easy to implement and even beginners will find it relatively easy to trade.

The first step is open a 30 minute or 1 hour chart time frame and identify the Asian trading session’s range high and low. Once the range is identified, mark the highs and lows with a horizontal line tool. Simply calculate the range and then project it off the high and low, which becomes your take profit level. The stops are placed at the range high and low. For example, if you take a long position, then you would place a limit order at the range high with stops at the range low and vice versa for short positions. The London session starts at 1000 hours GMT+3. Bear in mind to shift one hour during daylight savings time.

The most ideal currency pairs to trade the London Open breakout strategy are: EURUSD, GBPUSD, GBPJPY, EURJPY, GBPAUD, EURGBP, GBPCAD and EURCAD. Traders can apply this strategy to other currencies as well but bear in mind the spreads which tend to widen during the first few minutes of the London session open. It is also best to only trade a currency pair where at least one of the currencies is a European currency (ex: Euro or the British Pound).

Overall, the London Open breakout strategy comes with a 1:1 risk/reward set up, but that is open for traders to experiment with. As an example, two positions could be traded with the first position closing out at 1:1 target while the remainder of the trade can target 1:2 while trading at breakeven.

The following charts illustrate the London Open breakout strategy.

Long Set up

London Open Breakout Strategy Bullish TradeLong Setup – London Open Breakout strategy

  • In the above chart, we set the time frame to 60 minutes (1 hour)
  • The daily chart shows an upside bias and therefore we are more confident of a long set up rather than a short set up
  • Calculating the Asian session range which is 24.9 pips, we place a pending buy order at the high with the target set to 24.9 pips while the stops are set to the range low. Note that the risk/reward is 1:1
  • At the 10 AM candle, price breakout of the range and hit the take profit, giving a quick 24.9 pips

Short Set up

London Open Breakout Strategy Bearish Trade
Short Setup – London Open Breakout strategy

  • In the above short set up, we first looked at the daily chart where the previous day closed on a bearish note indicating that prices could move to the downside
  • Marking the range high and low of the Asian trading session, we place a pending sell limit order at the range low at 0900.
  • When the London session opened at 1000 hours, prices initially rallied to the upper end of the range (which could have resulted in a loss if you had blindly placed a long order too) and then falls back to the lower end of the range and reaches the 34.9 pips take profit level for the short order.

One of the biggest advantages of the London breakout strategy is that it combines a mix of both fundamentals while at the same time allows for traders to take advantage of the volatility to capture some quick profits. This trading strategy can be tweaked in performance by picking only the opportune trading set ups. Some of the factors that can help traders to improve their performance with the London open breakout session are as follows:

  • Trade only on days when there are no major news releases during the Asian session. The odds are higher if there are news releases scheduled within the first two or three hours into the London session open (ex: UK releases such as GDP, Jobs, inflation or European inflation, GDP data).
  • Always check the daily and weekly candlesticks to ensure that you trade in the direction of the main trend. For example, if you notice a bullish engulfing on the weekly or daily charts, make sure to only take trades on the long side.
  • Greed is a killer. By controlling greed and setting the target to a reasonable number of pips, traders can focus on consistency of this trading strategy and thus focus on their bottom line equity
  • The London open breakout strategy can be exhausting if you follow more than one currency pair at a time. Therefore it is best advised to only pick a currency pair that offers you the biggest potential