Those that trade currencies
are familiar with the concept of London open, European, American or Asian
sessions. All traders, whether trend, swing or day search for volatility and
bigger than usual moves. We need some direction in securities in order to make
money. That’s what trading London session is all about. When London opens
biggest amounts of money starts entering the market (Forex) and this creates
what all traders want: volatility and moves.
Start copying popular investors of eToro
Disclaimer: All trading involves risk. Only risk capital you’re prepared to lose. Past performance is not an indication of future results. This content is for educational purposes only and is not investment advice.
After reading the article read my other related posts and watch a video on news trading:
Trading BOA interest rate decision
Inverted head and shoulders pattern
Volatile trend trading strategy
Fortunes are made when trends change
How to make money in trading breakouts
Volatility increases at London open
Start copying popular investors of eToro
Disclaimer: All trading involves risk. Only risk capital you’re prepared to lose. Past performance is not an indication of future results. This content is for educational purposes only and is not investment advice.
After reading the article read my other related posts and watch a video on news trading:
Trading BOA interest rate decision
Inverted head and shoulders pattern
Volatile trend trading strategy
Fortunes are made when trends change
How to make money in trading breakouts
Volatility increases at London open
If you look at the chart of
eur/usd pair below you will see clear examples of what I mean. The period
covers the days from the 21st of August till the 5th of
September this year (2012). It is just an example of four days. The levels of price
advances are marked in ellipses. Scroll back and study the pair for yourself to
see that volatility does increase during London session and it is one of the
best times to trade currencies (if you are a day trader). And this is true not
only about eur/usd and other majors, but also about crosses.
Now, there are a few ways
how one can trade London session and a lot of traders like doing that. Not
everybody is successful due to many reasons, one being the wrong type of
system. Let us look at how one should not trade and also how one should trade
these volatile sessions.
Asian range breakout method
One of the prevailing
tendencies is to trade Asian session breakout on the London open. A trader who
uses this kind of strategy would draw trend lines marking the high and the low
points of the range. The high point (of a currency pair) would be the highest
point that the price reached during the Asian session and the low point would
be the lowest point that the price reached during the Asian session. He then
places a buy stop order above the resistance trend line and a sell order below
the support trend line. If price goes up buy order is opened and sell order
removed (by a trader). If the price goes down sell order is opened and buy
order is removed (by a trader).The chart of eur/gbp below illustrates that. You
can do the same kind of thing with any pair yourself daily.
Problems with this kind of method
One major problem with this
trading system is that you do not follow the news that is usually released at
European session and these pieces of news create significant moves. So, you
might have a lot of false breakouts as a consequence and the price will go in
the other direction when news is released. Well, sometimes it can go in your
direction, but quite often not (will not go into detail about this).
Another problem is that this
method does not take into account a prevailing trend or swing a given currency
is in at the time. So, if you trade Asian ranges breakouts against the
prevailing trend you will often get burned and have a loss. If you trade the
breakout in the direction of the move you have better trades (in terms of
percentage). However, it is still not the best way to trade London session.
How can one trade London session better?
First, of all if you looked
again at eur/usd chart you will see that the entire price moves that are marked
in ellipses were upwards. What does that say to us? If you look at 4 hour chart
you will see that the pair all of the time was in an upward swing. What does
that mean?
It means that we have to
trade in the direction of the trend or a swing. Contrary to London open breakout
trading strategy (Asian session breakout trading strategy) you don’t trade
blindly. You trade in the same direction the market goes. It means, in this
case you only buying.
If you also studied
fundamental news calendar you will see that there was no major news scheduled
during those periods of times where price is marked in ellipses. It is good for
us. It means no major news will impact our trading decisions and we will be
able to trade without thinking about some crazy events that could cause markets
to go against us, hit our stops and then go back again in the direction that we
have predicted. It can be very disappointing, so if you are not experienced it
is better to stay out of the market when these news events are released.
You will see a lot of
situations when major news (such as interest rates, NFP, GDP) are released you
have a lot of opportunities to make some nice technical trades in the direction
of a prevailing move. Always remember. Enter your trades in the direction of
that prevailing tendency.
How do you enter the market and where you place a stop
and where to exit?
If London session is such a
good time for entering market it is of vital importance for us to figure out
the place of entry. Firstly, if the range is very small it is simply advisable
to miss a trade and wait for the pair to visit most recent support. You do have
corrections in swings, so it is best to wait for those to enter your trades. It
would also mean that you would miss some days and not trade at all. At least,
this is how I do it.
Now, there are two ways how
to actually enter trades during these sessions. The choice of which one to use
depends on where the price is at a given time when London session starts. For
those who are impatient I can say that you can use both methods. I prefer using
only the second one.
The first method – breakout trade
The first method is used
when the price is at the top of the Asian range. You then buy a breakout. You
need to place a resistance line above the highest point of the most recent
session and buy when the price goes beyond the level. You place your stop below
the lowest retracement (small valley) and you start moving it placing below 15
minute retracement candles (valleys) till your stop(s) are hit. (See the image
below)
The second method – buy at support
The second method (more
safer) is used when the price is at the bottom of the Asian range. You enter
the market when 123 pattern or some other bullish formation is broken upwards. You
move your stop(s) placing them below 15 minute retracement candles (valleys)
till your stop(s) are hit. (See the image below)
The second method does not
give you too many opportunities during the week, but it profit/loss ratio is
much better and you will have many more profitable than losing trades trading
this way.
Ok, I hope you see now how
you can trade London sessions. If something is not clear write me and ask. I
will be more than glad to answer.
If you liked the post I
would also be happy if you tweeted, liked it on Facebook and other social
platforms. Have a nice day.
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.