This week we’re going on a London Breakout. And it’s not because the iconic London Bridge is falling down(as the famous nursery rhyme suggests). We’re going to learn how to trade the London Breakout Strategy. The London Breakout strategy is traded during the first three hours of the London trading session. According to forex folklore, that’s where all the action and the money is. The only pair you need to trade is the GBP/USD pair.It’s perfect for rookies looking to make a quick 50 -100 pips. Just make sure you don’t turn into a gambler. When hit your target, just bow out gracefully.
If you live in a weird timezone I really feel for you. You may have to forgo much valued sleep if you want to experience the excitement of the London Breakout. For some of you, I guess sleep is no object where profits are concerned. So long as you allow your body to get some much needed rest.
I guess the first question some of you are asking is:
Why In the World Should I Trade the London Breakout?
Very simple. The London breakout is the forex market’s biggest mover. And, not only does most of the trading takes place in the London breakout, but it also carries the most volume as far as currency trading is concerned. The voluminous nature of the London breakout creates huge trading opportunities for both veteran and rookie traders alike. No wonder, traders around the world deny themselves beauty sleep at night just to get a piece of the London action
So what does all this volume mean? It means the trend direction of the GBP/USD pair during the first three hours will determine the overall trend direction for the remainder of the London trading session. Besides the name of the game is catching the upside or downside moves during this 3 hour window. Now let me show you a glimpse of what the London Break Out looks like.
This is a classic illustration of the London Breakout Strategy. We have the bulls breaking out of the level of the resistance and heading for the hills.And with such a strong breakout,this is the perfect opportunity to pick up a quick 50-100 pips.. And like I said earlier, if you are a rookie looking for a head start, you’d be crazy not to take advantage of this opportunity.
I guess the obvious question to ask is
Where and How Do I Place Break Out Trade Orders?
Let me break the process down nice and easy so you understand better.
- First draw a support and resistance line around the last three candlesticks formed during the Asian Session
- Place a buy order 2-5 pips above the resistance zone
- Next place a sell order also 2-5 pips below the resistance zone.
- Once an order is activated,you immediately cancel the previous order.
- To protect your trading position you gently place a stop order in the location of the previous order.
Now let’s see how this work.
Now take a look at the Asian swing. The 1 23 labels represent the previous three candlesticks I was talking about. Pay close attention to the red support drawn underneath the candlesticks. Now look at the resistance /suport levels in the London market..Place your buy/sell above and below these spots respectively.. Once on order is triggered, cancel the previous pending order. If you want to be safe than sorry, place your stop loss order, place your stop loss in the location of the previous order.
If you’re not sure of how to draw support/resistance levels, read up on Identify Support and Resistance Levels With Price Action Analysis
Now to the most important question of the day is:
How Do I Manage My Trade?
Again, let me break this down nicely for you to understand.
- If price moves at twice the amount you risked,move your stop loss to break even point. Let’s say your stop loss is 30 pips, and price moves up to 60 pips. You immediately move your stop loss to break even point. It’s just like claiming partial profit. And you’ll be preventing your position from being wiped out.
- The next thing you can do is to use a trailing stop to secure the profits as the trade moves in your direction. You can do it two ways.
- The first trailing technique you can use is by applying the trailing stop when price moves at the same amount that you risked or if price moves at twice the amount that you apply your trailing stop at half that amount.. So let’s say if price moves by 30 pips you place your trailing stop by the same number of pips.
- However, if price moves up 60 pips,you move the trailing stop by 30 pips.
- The second technique and best technique to use is to simply put the stop loss behind the high/low points as price moves in your direction. If you don’t want to risk losing your money and your hair at the same time(That is if you have any) This the best way to go.
If you’re still not sure about trailing stops and other market orders read up on Forex Trading Basics- Top to Bottom Part II.
Close The Trade
Once the London session ends, close the trade and go take a nap. Even if you made only ten pips,(And I’m only using this as an example), just shut up shop and And if you re thinking of adding to your ten pips during the U.S session, you. could be laughing at the wrong side of your face. The market may not move in your direction. Besides, you’ll live to trade another day. So take your profits for the day and put it away for safe keeping.
That’s a wrap for ” London Breakout”. As you can tell, it’s not about London Bridge falling down. It’s about the London Breakout Strategy which touches on huge trading opportunities during the first three hours of the London session. Like I touched on earlier, if you’re a rookie looking for a quick head start, the London Breakout session is IT for you. Til next time take care.
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