As new traders enter the FX Market, many are often seeking fast, and active price activity. The open of the London session at 3: As the US session begins 5 hours later, the environment can change quite a bit as even more liquidity is entering the market; and this time it is coming from both sides of the Atlantic.
The slower Tokyo market will lead into the London session, and as prices begin to come from liquidity providers based in the United Kingdom, traders can usually see volatility increase. Notice how much greater these moves are, on average, after the Asian session closes: Support and resistance may be broken much more easily than it would during the Asian session when volatility is usually lower.
When trading breakouts , traders are looking for volatile moves that may continue for an extended period of time. This way, when they are wrong, they can cut their losses short. When they are right, they can maximize their gains. Trading breakouts during London is much the same as trading breakouts during any other time of day, with the addition of the fact that traders may expect an onslaught of liquidity and volatility at the open. When traders look to trade breakouts, they are often seeking firm support or resistance to plot their trades.
The chart below will illustrate a breakout setup in more detail. The big benefit of this setup is risk management. Traders can keep stops relatively tight, with the ideology that if support is broken and DOES NOT move lower, the trader wants to cut their losses small. But if price DOES continue lower, this allows the trader to accumulate a handsome profit relative to the amount put up to risk.
This strategy was outlined in the article, Price Action Breakouts. As we looked at in How to Build a Strategy, Part 3: Traders can incorporate pivot points, Fibonacci, or psychological whole numbers into their analysis we outlined each in the aforementioned article ; the key being that traders want to be comfortable and confident in the levels of support or resistance they are looking to play. A favorite amongst traders looking to use breakout strategies is a simple indicator that is very much based on price action.
This is a simple indicator, but it can help traders by the fact that it will denote these levels for us, and traders can easily see the highest-high and lowest-low in a quick glance. Trading the US Session 8 of How to Build a Strategy, Part 1: How to Build a Strategy, Part 2: The Time Frames of Trading.
How to Build a Strategy, Part 3: How to Build a Strategy, Part 4: How to Grade Momentum. How to Build a Strategy, Part 5: Trading Psychological Whole Numbers. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. Trading the London Session. Price action and Macro. Foundations of Technical Analysis: Classic Chart Patterns, Part I. Upcoming Events Economic Event. Forex Economic Calendar A:More...