$* Statistical London Breakout Strategy *$

Trading Systems Free Forex Trading Systems
1

HERE IT IS!!!

[B]LONDON BREAKOUT–Statistical[/B]

This is a great strategy for people like me who work a full-time day job, and live in America, or other time zones, where it’s tough to trade the whole London session. I can get up for about 5-10 minutes in the middle of the night, set my trades, and go back to sleep…wake up and see what happened. This is very easy to visually backtest for yourself to see the results. I would call it the breakout of the breakout, because the trend often changes after this time in the London session, and this will catch the inevitability of that change.

Time Frame: 1 Hour
Pair: EUR\USD
All trades opened from bid side chart

[B]Please see the EDIT below, as while I left this first post intact, I use a modified version, detailed in the EDIT[/B]
1.Wait until the first full hour of the London open is about to finish, 5-10 minutes before the candle closes.
2. Place a buy stop 3 pips above the high of the candle that is about to close, with TP of 4 pips, with the SL at the candle’s low, or 30 pips, whichever is less.
3. Place a sell stop at the low of the candle with 7 pip TP, and SL at 3 pips above candle’s high.
4. Leave orders open until they close themselves, often, later in the day, the other order gets triggered and statistically is successful, except for Fridays, I never leave positions open over the weekend, close trades at your discretion on Fridays.

[B]2nd Contract[/B]

Now, while this has high probability in wins, the losses would wipe out 2-3 days of wins, so a second order needs to be placed a same locations as the first ones, but with different SL, and TP settings to catch and ride the trend. Start with the SL the same as above instructions, so that when it’s hit, you catch the breakout going the other way. Then, the TP needs to be more than the distance in pips from the top to the bottom of the candle, for good RR, but close enough to have high probability of getting hit. Trailing the stop is good, but just know the price often retraces to the end of the candle it broke from as a retest, so BE stops almost always get taken out. This is the part which I am still experimenting, and welcome any input, help, trying your ideas to make this very profitable, because it can be. It is very possible to end every day for a month in profit, despite a loss every once in a while in between successful trades.

As far as psychological analysis of this method, most other London breakouts focus on the few hours before the London open, while this one waits until almost an hour after the session has already started, and there is still a lot of daily range potential, so it is inevitable for a break at least in one direction, but statistically it’s actually hilarious how many times the price breaks above for a quick 7 pip TP, then goes the other way to hit the other TP, usually going on for 30, 60, 100 pips as part of the trend start the london open is famous for. Look at July’s chart history to see what happened after this candle each day, it’s crazy. July only had 3 losses with this method. Statistically, the price is going to be far away from one of the ends of this candle as time goes by, almost all of the days of a given month, so this method takes advantage of better probability afforded by waiting a little later for breakouts.

So, backtest it for yourself, demo it, see if you find a great area of TP for consistent wins from the 2nd contract trades. Also, this should be super easy to code into an EA for those who don’t want to even get up for 10 minutes in the middle of the night, and and EA would make backtesting the 2nd contract part of the strategy much less time-consuming.

I have not seen much success backtesting this with other pairs, but you can try for yourself, if you like.

Yes, I know the actual realized profit for the first part of the strategy is different for the buy, than the sell, but that’s because it’s statistical for maximum win percentage…usually there is about 10 pips in the account by time the next session rolls around.

EDIT: I have tried some settings as far as “second contracts”…
I actually had three orders in each direction with an initial SL same as the opposite direction’s stop entry order, and with 20, 40, and 60 TP, with a 20 pip Trailing stop. I would leave these orders open throughout the day until late in the Asian session to let them play out. This was pretty successful, but when the SL was hit, it was all three trades hitting the loss, and not that great of risk\reward ratio…so, I’m now using only one entry in each direction with a 30 pip TP and maximum SL of 30 pips, if the reference candle is longer.
Thanks to crisscross for making an EA, which now has many features available to tweak settings, so you can test to your heart’s desire. You’ll have to find it in the thread yourself, as there are updates, and discussion, in which you are welcome to participate.

Let’s compound the pips, guys (and gals):cool:

1 Like
2

How long have you traded this?

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2 Months with first part, on live account, July and August…working on 2nd part still, which is why I posted this method, it needs some work, but appears to have great potential for consistent profits, may not be enormous profits, but over time, it will add up…suggestions welcome

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I will look at it I am trading a very similar method that has been working well the last few months on forward testing and back data. I am only using one order and moving the stop to BE at about 8 pips. I am using an EA to enter trades and it will reenter the trade if price retraces into the breakout range after a trade closes at BE. I am using a trailing stop to close trades.

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Looks promising, thanks for sharing.

I’m making a few changes to your settings to better suit my style as follows, but essence of trading breakout of London session’s first hour remains:

  1. Buy stop (sell stop) placed at high of first London H1 candle + broker spread (low of first London H1 candle + broker spread)
  2. For buy stop (sell stop), SL at low (high) of first candle
  3. TP based on size of first candle + broker spread (i.e. if size of first candle + spread is 25 pips, TP 25 pips away from buy stop / sell stop) => This would give risk:reward of 1:1
  4. Once buy stop (sell stop) is triggered, remove the sell stop (buy stop) => Only one trade a day
  5. Vary unit size according to the size of first candle + spread so that I risk the same amount each day (e.g. say I am willing to risk $200 each trade, if the size of first candle + spread is 20 pips, I would buy the number of units that would give me the equivalent of $10/pip. If the size of first candle + spread is 40 pips, I would buy the number of units that would give me the equivalent of $5/pip => With this, I’ll only need to count the number of wins and losses without having to worry about their magnitude when backtesting to see if this system has an edge.

I’ve done a quick visual backtest based on the above modifications. From 10 Jul till today, the system would have yielded 24 wins and 17 losses, or a win rate of 58%. Most consecutive losses is 3 in a row.

The tasks on my to-do list:

  1. Backtest this system further to confirm that the system indeed has an edge over the “long term”.
  2. Does not seem to me that this system is only destined to work with EUR/USD pair simply because of some unique characteristic of the pair. Test this system on other pairs as I believe that a robust system need to work across different pairs and not just specifically for one pair. Some pairs would obviously have a better edge than others, but I’m looking to verify that the many other pairs would still have an edge, however small (e.g. 51%).
  3. Backtest for a different risk:reward ratio of 1:1.5 or 1:2 by increasing TP but keeping SL constant.

Let’s see how things work out.

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Having an EA that automatically re-enters a trade when it has hit BE would do really well with this strategy, because price often does come back to retest the high of the first hour candle, but then often, when it goes back the other way, it is gone for good…and for good profit.
feel free to post your settings, if you wish, and #s

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You may want to use some form of volume analysis to assist you, to see the breakout levels better.

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How to analysis volume in Forex?

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Post #616
http://forums.babypips.com/free-forex-trading-systems/42052-what-really-turned-my-trading-around-62.html#post341033

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Thanks Relativity.

I am working on strategy similar to pipcompunder and I know that volume analysis increase results. I found guy who will make EA for my strategy. I think that he will do it in 2 weeks. After that I will present you backtest results.

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Cool. Thanks. I would keep tabs on this thread then.

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This morning was picture perfect example of what happens most days using the first hour candle of the London open, which I like to call the [B]reference candle[/B]. Price broke below the low to hit 7 pips of profit, then went all the way opposite to hit and profit the buy stop order, going far above-the breakout. The price retraced back down to about halfway down our [B]reference candle[/B] before shooting up, so any BE stops would have been taken out, which means a re-entry at the same original buy stop would have been very useful.

@Pipnol- Thanks for your contribution and interest. I will take into consideration what you have posted.

@Relativity- Does volume indicate how far price will breakout? Maybe it could be used to set TP points, I’m not worried if the price will breakout from the reference candle, it always, always does, if not during the London session, at least by the end of the US session. And I let the straddle part take care of the direction, which does change, as I pointed out at the beginning of this post.

@benks- feel free to contribute any aspects of your strategy that you think is helpful, and of course any results from your trading.

I think I will backtest an Idea of setting the trades without any TP, to see if the loss from one trade, which we can assume will happen most of the time, will be less than the total profit of the actual breakout, which means taking profit manually by seeing where price is about 4-6 hours later.

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At some level yes. My current research says approx 40 to 60 pips max.

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After skimming through past trades the EUR\USD chart, I am entertaining the idea of 3 trades per direction, set with 20, 40, and 60 pip TP, with the stop trailing 25 pips on the 2nd and 3rd orders, which should keep things profitable.

16

hey

first thank you for sharing your strategy with us,

but i am have a bit of trouble can you if possible post a snap shot of the strategy on a chart for us please,
i would appreciated it deeply

thank you
regards

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I am very sorry, but because how I access baby pips, I cannot post any pictures. Maybe somebody would volunteer.
Basically, when you are looking at an hourly chart of EUR\USD, we are looking for the first candle after the london session has started, just before it closes at one hour past the open. Then we place the pending orders as described on the first post, using the very top and bottom of this candle, known as high and low. Up to this point, the trend isn’t fully defined or in motion where we can see the direction, but is very close. Since this candle represents the price testing support and resistance, a breakout will be usually pretty clean and with a big move, and if it goes one direction, than the other, the other order will catch this reversal, and ride the trend for at least the next few hours. This is supposed to be basically a set and forget strategy, sort of like a daily candle breakout, as the orders are placed once per day, but using the hourly TF, instead of end of day…The idea is to make the most of the basic idea of breakouts.

18

HEY

THANK YOU

I am currently back testing the strategy but only the first contracts also on other pairs seems to be working.

i have a Question :- WHEN PLACING SELL STOPS DO I PLACE THEM 3 PIPS BELOW THE LOW OF THE CANDLE STICK OR AT THE VERY LOW OF THE CANDLE STICK?

ALSO on the 2nd contract i’m yet to back test but it looks and sounds good.

regards

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I place the sell stop right on the bottom of the candle, because I use the bid chart…the 3 pips can be tailored to your broker’s spread, I do that on the buy stop so that it triggers when the price touches the high of the candle on the bid chart, visually. Why? Because all my visual backtesting is done on bid chart, and that’s the amount that gave most consistent wins, just as far as the first contracts.

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pipcompounder: If you want I can send you indicator who draw box and add filtr (your 3 pips).

Look at this picture xxxx://screenshooter.net/0588350/niduwxn

Give me your email because I am not able to send you PM.

21

Hey

I would like to have the indicator please thanks

My email is <[email protected]>

Thank you in advance