London Free Breakfast Forex Trading Strategy
Most traders, when they start off trading, they try to find the simplest strategy that would give them huge profits with minimal risk, a “free lunch” so to speak. I’m sorry to break it to you but there is none. Trading is simple to learn, but very difficult to master, and in this game only the masters earn. Huge profits with minimal risk? Nah… There is no such thing. In trading, risk is always involved and usually, the higher the reward aimed for, the higher the risk. There is no free lunch.
However, there are simple strategies that you could do everyday that could possibly put you in profit. The caveat though is that it is still a probabilities game. Risk is still involved.
It is always good to be familiar with the characteristics of the currency pairs you are trading, as well as the markets that affect forex. To better understand this strategy, we will explore these two factors affecting our forex strategy.
First, the markets. There are three main markets in the forex world. Asian market lead by Tokyo, the European market lead by London, and the US market led by New York. These three have different characteristics. The Asian market is the timid type. Its sessions are rather quiet, and volatility is rather slow during the Asian hours. London and the rest of Europe on the other hand is quite on the aggressive side. It is marked by a spike in volatility and large volumes of transaction. The US market is rather volatile but a little more behaved as compared to Europe. Although I couldn’t vouch on that now that a little word from US politicians could make the US market as wild as gang busters.
Going back to our topic, the London open is characterized by a spike in volatility. This is because coming from the Asian market, which is very quiet, the sudden increase in volume and transactions is rather glaring during the London open. This is a very big opportunity for us as traders as volatility is usually our friend.
Now, onto the currency we would like to trade. For starters, we would like to trade the cable – GBP/USD. The cable is one of the most volatile currencies among the major pairs. This is because the pair consists of the currencies used by two of the largest forex markets. This is why many traders say the Cable can be very rowdy.
So, now that we have an idea of how the London open and the Cable behaves, let’s move on to our strategy.
The Setup: London Free Breakfast Strategy
This strategy again is very simple. It is very mechanical and can be done by beginner traders. I would consider this as a beginner strategy.
Another thing about this strategy is that it works usually in the first couple of hours after the London market opens. This means that if all goes well, you would be in profit before lunch, if you’re living in London anyway. So, on to our free breakfast.
First, we will have to box the Asian session, from it’s open to the close, as this is usually a ranging type of market. This box is what we will be looking for a breakout from. We will mark the high and low of the session, which will be our support and resistance.
Then, we will be looking for a breakout. The first breakout from any of the two will be our trend direction. It should also be a momentum breakout, which closes beyond the box. If it is just a poke, then disregard it as it is just a testing of the support or resistance. As soon as the candle closes outside of the box, we take the trade going that direction.
Timeframe: 15-minute chart
Buy Entry:
- Box the Asian session from the open to the close marking the high and low of the session
- On the London open, wait for a candle to close beyond the high of the Asian session
- Enter a buy market order on the close of the breakout candle
Stop Loss: Set the stop loss at the low of the breakout candle
Take Profit: Set the take profit target at 50 pips from the entry price
Sell Entry:
- Box the Asian session from the open to the close marking the high and low of the session
- On the London open, wait for a candle to close beyond the low of the Asian session
- Enter a sell market order on the close of the breakout candle
Stop Loss: Set the stop loss at the high of the breakout candle
Take Profit: Set the take profit target at 50 pips from the entry price
Conclusion
This strategy is a simple yet logical strategy. It is suitable for beginners who are still trying to learn to read price action, or still trying to find the indicator that they want. For the meantime that they are still learning, they could use this simple strategy to earn while learning.
Although this strategy is quite good, it does have failed breakouts. There will be time when after the breakout, price would dive back in the box and reverse to the other side. There are also times when the momentum candle is just too long, there is just little room for it to continue, then it reverses on your trade. There would also be times when the following few candles after the breakout, price would reverse for a while and even poke or close back in the box for a while before going our direction. You would notice that on our sample trades.
Remember, this is the Cable and it is very volatile. But this volatility could also make you money for a while.
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