The London Breakout Trading Strategy
What are the rules for the London breakout trading strategy?
The London Breakout Strategy
Let’s talk strategy… I’ve done a lot of work on the opening range breakout (deep dive and indicator here) on the indices. DOW, NASDAQ, etc.
But a variation of that for the Forex market is the London Breakout Strategy.
This is a strategy that takes the high and low formed before the London open, then looks to follow the trend if prices breaks out of that range during the London session.
The theory is, that the Asian session has a lower volume and participation level.
Higher timeframe money will enter during the London and then New York sessions.
Potentially causing a bigger move we can ride.
So, what does it look like?
London Breakout Strategy rules:
Bracket the Asian session range.
In the first three hours of the London session you…
- Buy if the pair exceeds the high
- Sell if the pair breaks the low
Chart Example:
I have a custom indicator called Exchange Eye I had coded up for Trading View (click here to download it for yourself).
That tool automatically brackets the different sessions according to your parameters.
On the above chart of cable, you can see a tight Asian session range, followed by aggressive buying at the London Open.
Which pairs work best with the strategy?
I would argue that GBP pairs are more likely to bring in volume during the London session as UK traders start to move around sterling.
- GBP/USD
- GBP/JPY
- GBP/AUD
- GBP/CAD
GBP/JPY London Breakout triggered to the short side
But the theory that more volume comes into the market once London opens probably holds true for any market.
Does it work?
I bet if you just traded this across the major pairs each day without any other filters it would have a negative expectancy. (I haven’t tested it thoroughly, I’m just being honest based on experience with breakout strategies).
Currency markets sit in ranges for months at a time.
This thing would get chopped to sh*t!
Just like the ORB on the indices, the edge comes from when you deploy it…
- Like using an NR7 filter
- Trading it in the direction of a higher time frame trend
- Using a daily chart as a primary filter and then going to the London Breakout strategy as an intraday trigger to get into the trade.
Framing the strategy as a trigger to get into a trade rather than a filter AND trigger. (More on those concepts here).
What do you think?
By the way, if you want to hear how other traders use this approach. In this podcast episode, I spoke with Anthony Vallone, a forex trader specialising in this style of strategy.