I am not really new to trading, but I am new to daytrading, in particular two versions of the London Daybreak Strategy. The first one is the “original” one, where you place a buy stop order above the last 1-hr candle of the Asian session and a sell stop below the said candle, by x amounts of pips. The second one is the strategy where you “fade” the breakout, riding the momentum across the width of the Asian session.
Many people have said that they work really well, and I have backtested about 10 months of data on the relevant pairs on these stretegies. Judging by the back-testing results, this strategy/strategies look very good, to say the least.
However, I have now traded it myself for a month (January 2021), and all of a sudden price action does not behave nearly as well as it did in the back-testing months. I understand it is a marathon, and not a sprint and all that.
But I would like to ask a couple of questions to anyone who has any consistent experience using the London Daybreak Strategy.
How long does a “not-so-profitable” period usually last using the London Daybreak Strategies?
What are you worst-case drawdowns using the these strategies?
What is your preferred way of managing your Stop Loss on these strategies?
I would really appreciate anyone’s feedback, as trading can be a lonely endeavor.
I have been trialling and using a variation of this strategy. I find neither Asian over-night price action nor long-term charts consistently indicate direction from the London open. A way round this is to set bracket orders, a buy at the top of the selected range and a sell at the bottom. Each has a stop-loss at the other order’s entry price.
Three things help - first, a timed exit rather than a TP: I use 1400hrs London time to be out before the US trading causes a re-set. Second, avoiding a TP means that price can move an unlimited number of pips and the occasional very big win pays for multiple small losers.
Third, select GBP/USD for the strategy - see cable’s intra-day ATR for why this pair is best for this strategy (and why for example USD/JPY won’t work).
The single-most aspect about trading that I’ll never agree with, or, recommend anyone waste their time on is “back-testing”. Taking a strategy that needs to be applied to real-time price action, and comparing it against price action that has already occurred will never yield a profitable strategy. The focus should be on “forward-testing”. Come up with a strategy that is natural to you and has 3-5 boxes on a checklist. Work it over 3 6 12 15 24 months and see what you come up with.
How can you possibly apply a probability of profit for a strategy that has worked over the “last 10 months” when tomorrow, the entire structure of a market can change based on new info entering the picture and essentially NEGATING your “back-testing”.
I appreciate your answers. Sure, I agree about forward-testing,
but my question was more specifically about the London Daybreak Strategy drawdowns and stop loss management =).
I don’t think that any strategy is good or bad before you try it out. It is about your trading requirements. You will have to do your own testing until you find a strategy that works great.
Hi, I have been testing a strategy now regarding London open and NY open which seems to get crazy results so far! It’s very simple aswell… would you be interested in having a look for me? I can msg you the rules etc just to see if I have missed anything… As some of the rewards was crazy last week just over 3 pairs.
Well that’s the catch with forex and I believe one of the drawbacks too that nothing’s consistent. I also don’t understand why traders backtest. How can you authenticate and predict future course of action based on the historical data?
