London Breakout Strategy – Forex Explained

Have you ever heard of the well-known London breakout strategy but are still unaware of its true meaning? Would you be interested in learning more about it to boost your long-term profits? Get all information about the forex market and how to enter the market. Also, get to know about terms like stop loss, sell stops, price breaks, price moves, market opens, etc.

Supposing that both of your answers are yes, then we’d like to introduce you to one of the most popular trading strategies in Forex recently.

First of all, trading in the Forex and stock markets can be a very overwhelming challenge for any new investor. Financial managers have been accommodating to any individual who has been eager to invest their funds safely. Nonetheless, what if consumers have the opportunity to go through a go-between?

Let’s see what the London breakout strategy is in order to get the complete picture, shall we?

The definition of the London breakout strategy

Whether you happen to be at the beginning of your Forex trading career or you’ve gained some experience by now, it’s essential to understand the basics of the London breakout strategy. This particular strategy refers to a day trading strategy. It aims to take advantage of the trading range before the opening session of London.

It is also known as the London Daybreak strategy which is considered one of the simplest Forex trading strategies that you’ll get the chance to use. Interestingly, this particular daybreak strategy utilizes the increased volume that you will get the opportunity to see during the London trading session.

However, in order to fully understand the London breakout strategy forex, it’s essential to start at the very beginning. The fundamentals of the so-called “London Open Breakout Forex Strategy” are now in order.

What is the London strategy based on?

Like the name implies, the London breakout strategy is built upon the increased activity during the first hour of trading. The chart time frame that we are using is a one-hour chart. Besides that, a great majority of traders are using candlestick charts since they allow understanding the market’s sentiment to reach the candlestick charts.

Even though it’s not considered a requirement, individuals who understand the candlestick chart patterns can see why such practices can be highly beneficial.

What currency pairs should you use with this particular method?

When it comes to currency pairs for trading, it’s usually the GBP/USD pair. However, one is able to trade some other currency pairs like GBP/JPY, for example, since it’s famous for its high volatility. According to all this, any trader has got plenty of opportunities.

Moreover, since the London breakout strategy is focused primarily on the Asian-London session Forex, it clearly makes sense to consider the GBP/JPY currency pair when using the London breakout trading method.

When does the London trading session start?

In order to explain when this specific type of trading session starts, we’ll take advantage of a GMT+2 or GMT+3 broker. Given that the London trading session starts at 7 AM GMT, the time between 7 AM and 8 AM is the exact time when you should prepare to trade the markets.

What is the key to the success of the London breakout strategy?

The London breakout strategy’s success is due to banks’ high trading volume, which is a way of accommodating their corporate clients.

Trading at the London or New York open will provide you with more volatility, meaning more opportunities to trade and profit.

Most of the trading activity will be squeezed in this time frame. In case you miss your entries, while the trend from the London opening range breakout emerges, the market is not going to provide you with a second chance to get back into the movement.

And that’s precisely what makes the London breakout strategy forex so powerful. Keep in mind that it’s mandatory for you to monitor the first hour after opening the London trading session. If you’re interested in tackling the market, apace with the smart money, you’ll realize that it’s a great starting point.

How to make the London daybreak strategy more effective?

The London breakout trading system is also known as an open system, which means traders can use a variety of different strategies or indicators to develop this uncomplicated trading device.

On the other hand, perhaps one of the most significant drawbacks of this particular method is that the specific trend you are looking at can be very subjective. In order to make the London breakout strategy more effective one should be patient and wait for a retracement.

It’s the most efficient way to trade the London breakout trading strategy. However, there is only one exception: you are required to wait until the retracement occurs. Any time during the day could be the time for it to occur.

Keep in mind that this specific method slightly differs from the regular London breakout trading systems. There may be periods when no trades can be made.

The Bottom Line

Perhaps one of the main things to remember while trading the London breakout trading strategy is that it’s not just any breakout trading system. Quite the opposite, it requires you to focus on the prevailing trends. Breakout, as a term, refers to the short-term perspective. It means just a few hours of the Asian trading session close and opening hours of the London session.

According to that, you will be able to see that the extensive trend is up, and you’d get the desire to trade the London breakout trading strategy. Therefore, it’s best for you to trade in the direction of the trend. However, there will be times when you’ll notice price action where the breakout moves in the wrong direction.

In that case, you should stay on the sidelines and wait for a more compelling trading signal from the breakout method.