Trading the Breakout of the Early London Session
You may remember a strategy I laid out a few weeks ago known as the Asia Mirror Strategy. The success of this London session trading strategy depends upon the next day’s London Session and New York Session following through from the prior day’s sessions. The best London Breakout strategy follows a similar pattern. There are several ways this can be done, I’m just offering one for you to build upon. For the purposes of this strategy, I consider the Early London session to be from 8:00 am to 11:00 am London time, 3:00 am to 6:00 am New York time (US EDT), or, in my case and the case of the example charts, 2:00 am to 5:00 am US Central time (US CDT.)
If you want to learn another great london strategy try this.
What Instrument is Best for the London Session?
For the purposes of this description, I will be demonstrating this London session trading strategy on the E-Mini Dow Jones Futures from the Chicago Board of Trade (CBOT.) I suspect this strategy will work well on the Euro, Pound Sterling, and Swiss Franc currencies, as well as any number of US, UK and European Futures instruments. As always, you should try it out on a simulated platform before committing any real money to the strategy.
Measuring the Early London Session
Your first step is, before the New York session begins, to measure the Early London Session. For reference, my platform is based in the US Central Time Zone, one hour behind New York. For ease, I draw vertical lines at the beginning and end of the Early London session and at the beginning and end of the Early New York session. In my example, I used Blue vertical lines for the London session (2am US CDT and 5am US CDT) and Lime Green vertical lines for the early New York session (7am US CDT and 10am US CDT.)
After placing the vertical lines, I drew lines at the high and the low of the London session. I also observed where the Early London session opened and closed (for direction.) I only trade in the same direction as the Early London session. The session closed higher than it opened, so I will be looking for a break to the upside only.
The next step is to measure the distance between the high and the low of the early London session. In the case of our example, 81 ticks. This will be our target. The stop loss will be one half of the target (rounded down); in this case, 40 Ticks.
When Do I Enter the Early London Breakout Trade?
The idea is to enter after the beginning of the New York session (after 8am NY Time) in the same direction as the early London Session. In the case of our example, the London Session was Bullish, so we’re looking for a break of the high of the early London Session. Again, in our example, the high was actually broken BEFORE the New York session began. If that’s the case, enter right at 8am when the New York Session begins. Your target and stop loss will still be the same prices, in this case, 81 ticks above the breakout price and 40 ticks below the breakout price.
In our second example, the breakout actually occurs after the open of the New York session. I changed this chart to a five minute time frame so you can see that it actually hit the target before pushing down toward the stop loss. That may not always be the case, but here it was. Remember the stop loss is there to protect your account. If you prefer to use a larger stop, just be sure to maintain your risk parameters and follow your rules.
Here is another example where the breakout occurred before the New York session. Again, we entered right at the beginning of the session and hit the target. Here we left quite a bit of money on the table, but we can’t spend our time worrying about that. If that concerns you then you should split your position. Take half off at the target and run the second half with the stop loss moved to break even.
Lastly, this is an example of a bearish London session.
The last rule for the trade is: close the trade at 11am New York time, no matter the profit/loss.
I recommend trading this strategy with no more than a 5% per trade risk – 2% risk is better, so size your trade accordingly.
Have fun, trade safely.