Trading systems used by traders in the financial markets are always demanding on certain conditions. For example, some trading methods are designed to work with certain assets, while others can be effectively used only at a specific time of day.
One of the most applied strategies for trading forex is trading at the opening of the London session.
Why do traders get interested in the opening of the London market?
It’s all about the sequence of work of the world’s financial centers, which we will tell you about in more detail now.
The fact is that around 11 PM to 8 AM GMT, the Pacific markets operate, where many currencies, especially European ones, are practically not in demand. If you look at the price charts of instruments compiled, for example, from CAD (Canadian dollar), GBP (pound sterling), CHF (Swiss franc), etc., we will see very dull price movement and no volatility.
The low demand for these currencies becomes the reason for a narrow and low volatile market, in which sharp price jumps in either direction (up or down) are very rare. Therefore, when the London market opens, the demand for European instruments rises sharply, especially for currency pairs in which the GBP and EUR are present.
London Session – Market Breakout
The increased interest in the GBP in the UK is understandable. Now let’s see how you can make money on this daily event by making only 1-2 trades. The London Stock Exchange opens at 08 AM GMT and this is the time when markets start showing some action.
We need to open a chart of the GBP / USD currency pair so that quotes for the last 3 hours are visible. We use this time interval in our trading as a price channel.
The chart will show that the price fluctuates in a rather narrow “sideways” direction, but this situation will continue only until the opening of the London stock exchange. The price channel is drawn using two horizontal lines (you can just visually assess the situation), which are drawn through the lowest and highest prices of the last 3 hours before the opening of the London session.
These manipulations are needed to delimit the range of changes in the market price in the last hours of the Asian market. Then traders who trade at the opening of the London session wait for a breakout of one of the boundaries drawn on the chart. It turns out that two situations are possible:
- If the price breaks through the upper border of the channel, then the long position can be taken
- If the price breaks the lower limit of the channel, then the short position can be taken.
Important Trading Conditions at the Opening of the London Session
It should be remembered that a breakdown of one of the boundaries of the price channel may not occur immediately, but after some time. In this case, you should just wait without moving the horizontal lines. However, probability of loss and risk are associated with every trading strategy. Therefore, prudence must be taken while trading the London session breakout strategy.