Simple London Breakout Forex Trading Strategy


Simple London Breakout Forex Trading Strategy

People are fascinated by quick and easy money. This probably the reason why many people, when they first get into trading and go into the online forums or look for mentors, they go for those that are easy and simple, while hoping for high yields with a 1 million % return on the money. I hate to break this to you, but trading is not like that. It takes hard work and persistence to excel in this field. If you are looking for something easy, then don’t expect high returns. Hard work and persistence can yield high returns. Shortcuts on the other hand could cost you money.

However, if you’d want something easy to start with, something with less analysis, there are strategies that would allow you to do that, but it usually is not a high accuracy strategy. But it is good enough to begin your forex trading journey on, as it could let you earn some while you’re still learning the ropes on how to properly analyze charts.

This strategy is one of those easy and simple strategies, but I would admit this is not a high accuracy strategy. There will be days when you would lose money. But it is something that you could start with, develop further, or make money from while learning more.

The idea behind this strategy lies in the crossover of the Asian session and the London session. The London session is known to be the start of strong volatility as London is one of the biggest capital markets in the world. During the London open a sudden spike in volatility occurs causing momentum.

Not only this, the beginning of the London session is also the end of the Asian session. Right before the London open, the Asian markets are beginning to wind down, square-off their positions, and are avoiding big position trades knowing that the London open’s volatility might whipsaw their positions prior to it finding its direction. This causes a tightening of the range just before the London open.

The only thing that goes against this though is that Frankfurt, another big market, opens an hour ahead of London. This causes a minor wave of volatility right before the big tidal wave that London brings in. It somehow widens the range a bit, making our returns a little bit lower if this was not the case. In some cases, if the Frankfurt open caused to wide of a range prior to London open, it is best to stay out of the market as much of the possible move might have already been made by the market. Still, we can make money out of this strategy.

The Setup

We have thesis is that if Frankfurt traders don’t make a move prior to the London open, then the market volatility and range could be muted prior to the open. We will identify this as three hours prior to the London open. So, we will be bracketing the high and low of the market on the candles three hours prior to the London open. This will be our range.

It is on the breakout of this range that we should be involved in the market, in the hopes that London’s direction on the first couple of hours will dictate the direction of the market prior to the New York open.

Then, we close the trade right before the open of the New York market. This is because although New York traders do take cues as to the direction of the market from London traders, the US market is usually when momentum changing news breaks come out that could alter the direction of the market. So, it is wiser to take profits prior the New York open, than to have your profits wiped out if the market reverses.

Currency Pair: GBP/USD (cable) only

Timeframe: 1-hour chart

Entry Setup:

  • Bracket the high and the low of the market on the three hours prior to the London open
  • Set a buy stop order five (5) pips above the high
  • Set a sell stop order five (5) pips below the low

Stop Loss: Set the stop loss at the opposite end of the range

  • For the buy stop order, set the stop loss at the low of the range
  • For the sell stop order, set the stop loss at the high of the range

Exit: Close the trade right before the New York open

Buy Trade Sample

simple london breakout forex trading strategy 01

Sell Trade Sample

simple london breakout forex trading strategy 02


This strategy is very simple. It doesn’t take a whole lot of analyzing the charts. All you need to know is what the high and the low is of the three-hour range prior to the open of the London market. Then, you set the stop entry orders. Then, you do whatever you have to do. Then, come back just before the New York market opens. That simple.

But there are trade-offs with this easy, set and forget style of trading.

First, it is better to trail the stop as soon as you are in profit. My suggestion would be to trail it at the low or high of the hourly candle as it closes. Another option would be to move the stop loss to breakeven as soon as your profit is half the risk on the stop loss.

Another more important trade-off with this is that markets could simply touch on one end of the range, then reverse. It is during these scenarios that this strategy would lose.

If you would also notice, the buy sample, which had a wider Frankfurt open candle had lower reward-risk return compared to the sell trade sample, which had a tighter Frankfurt open candle. Again, it is better to trade tighter ranges than wider ranges as the reward-risk ratio would be better, and the market would still have some room to move.

Use this strategy as an interim strategy as you learn and observe the markets, or improve on it further.

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