[B]London Breakout 1[/B]
[B]This London Breakout strategy has a win ratio of over 90%[/B].
[B]Currency pair:[/B] GBP/USD, EUR/USD - tested. Other pairs may also be used.
[B]Time frame:[/B] 1 hour
[B]Indicators:[/B] none
[B]At this point it might be an idea to bring up the chart at the bottom of this post and read the strategy whilst looking at the chart.[/B]
[B]Trading setup:[/B]
For this Forex system to work properly a trader needs to know the basics of drawing trend lines and be able to identify support and resistance lines.
[B]Our working range includes 5 candles:[/B] from midnight to 04:00 EST (including the 04:00 candle).
Optional: draw a midnight vertical line for visual aid.
With those 5 candles look for valid swing high and swing low of the price.
Draw a downtrend trend line connecting a found swing high to the most recent swing high of the previous days (make sure the last one is a valid high to draw a downtrend trend line through it).
Do the same for a swing low: connect it to the most recent swing low of the previous days, make sure you are putting in the right trend line using the rules of drawing uptrend trend lines.
If a trader sees, for example, no swings high in the 5 candle range, that means there will be no downtrend trend lines this morning.
[B]The Entry[/B] is on the break of either one of the two trend lines and is immediate without waiting for a current candle to close. A protective stop is placed just above/ below the candle that broke the trend line.
[B]Profit target:[/B]
Usually the whole trade will unfold within the next three candles (count in the candle that broke the trend line).
So, after the actual breakout we have 3 hours or 3 candles to trade, after that we will exit the trade with whatever profits are made.
[B]Main rule- Using S/R + timing:[/B]
Profit target is going to be the nearest level of support or resistance according to the S/R lines.
If, however, after only one candle this target is reached, it suggests a very strong market, we would therefore stay in the trade and set our goal for the next support/ resistance level. We would also choose the second S/R level as our profit goal if the first S/R level appears to be close to our entry point.
We have three candles to trade after the breakout, thats why we can trade calmly and allow our goal to shift to the next S/R level.
It is at the traders absolute discretion whether to set the target at the nearest S/R level and exit the trade once the target is hit or use 2 or 3 consecutive candles.
[B]Another simplified option would be with fixed targets and timing.[/B]
For example, EUR/USD target = 20 pips - spread. GBP/USD = 40 pips - spread. These are only suggestions. For other currency pairs you will need to back or forward test.
Thats it! Properly applied this London breakout strategy is more than 90% effective.
Good luck and good trading - Robert.
Thanks to: Edward Revy
