The London Breakout Strategy is one of the most popular and effective trading strategies among forex traders, especially those who prefer short-term, intraday trading. This strategy takes advantage of the price volatility that typically occurs at the opening of the London trading session. As London is one of the largest and most active forex trading centers in the world, its opening often sets the tone for the rest of the trading day. In this article, we will dive deep into what the London Breakout Strategy is, how it works, why it's effective, and how traders can implement it successfully
1. Understanding the Forex Market Sessions
The forex market is a 24-hour market, divided into four major trading sessions:
Sydney Session
Tokyo Session (Asian Session)
London Session (European Session)
New York Session (American Session)
Out of these, the London session is the most volatile and liquid due to the high volume of transactions that occur as both individual and institutional traders enter the market.
The London market opens at 8:00 AM GMT (3:00 AM EST) and overlaps with the closing hours of the Asian session and the opening of the New York session later on. This overlap often results in sharp price movements and increased trading opportunities.
2. What Is the London Breakout Strategy?
The London Breakout Strategy is designed to capitalize on the price movements that occur when the London market opens. The basic idea is that during the Asian session, the market tends to move in a relatively narrow range, forming a “consolidation” or “box.” When the London session opens, there is often a breakout from this range due to a sudden surge in volume and volatility.
Traders using this strategy identify the high and low of the Asian session and set buy and sell stop orders just outside this range. If the price breaks out in one direction, the trade is triggered, and the trader aims to ride the momentum for a short but profitable move.
3. Why the London Breakout Strategy Works
Several factors contribute to the effectiveness of this strategy:
High Liquidity: The London session sees a massive inflow of capital and participants, making price movements more significant and directional.
Market Psychology: Traders often react to overnight news, economic releases, and overnight price action, causing breakouts at the start of the session.
Routine Volatility: The London open often creates a new trend or continuation of an existing one, providing clear breakout opportunities.
4. Key Components of the Strategy
To successfully implement the London Breakout Strategy, traders must consider several key elements:
A. Identify the Asian Range
Timeframe: Usually from 11:00 PM to 6:00 AM GMT (Tokyo session hours).
Determine the highest high and lowest low during this period.
This range defines your “box” or consolidation zone.
B. Set Entry Orders
Buy Stop Order: A few pips above the Asian session high.
Sell Stop Order: A few pips below the Asian session low.
Ensure there is a sufficient buffer (5–10 pips) to avoid false breakouts.
C. Stop Loss Placement
Generally placed on the opposite side of the range:
For long trades: Below the Asian session low.
For short trades: Above the Asian session high.
Alternatively, a fixed stop-loss (e.g., 15–30 pips) can be used depending on market volatility.
D. Take Profit Targets
Risk-to-reward ratio: Aim for at least 1:1.5 or 1:2.
Targets can be placed at:
Previous support/resistance levels.
Round numbers (psychological levels).
Based on the average daily range (ADR).
E. Avoid False Breakouts
Use confirmation indicators like:
RSI divergence
MACD crossovers
Volume increase
Or wait for a candle close beyond the breakout level to confirm validity.
5. Example of a London Breakout Trade
Let’s assume you are trading the GBP/USD pair.
Asian session range:
High: 1.2700
Low: 1.2660
Place orders at 7:45 AM GMT:
Buy Stop: 1.2705 (5 pips above the high)
Sell Stop: 1.2655 (5 pips below the low)
Stop loss: 25 pips
Take profit: 50 pips
Outcome:
If the London session starts with bullish momentum and price hits 1.2705, the buy order is activated.
If momentum continues, the price reaches 1.2755, triggering your 50-pip take-profit.
This trade would result in a 2:1 reward-to-risk ratio.
6. Tips for Improving Success
Avoid trading on days with low economic activity: These can result in range-bound markets with no breakout.
Be cautious on Mondays and Fridays: These days often have lower volume or erratic movements.
Use a reliable broker with low spreads: Especially important in fast-moving markets like the London open.
Stick to major pairs: Such as EUR/USD, GBP/USD, USD/JPY – they typically show the best performance with this strategy.
Backtest your rules: Always test the strategy on historical data before going live.
7. Common Mistakes to Avoid
Overleveraging: High volatility can lead to quick losses if positions are too large.
Chasing the breakout: If you miss the initial move, don’t jump in late. Wait for a potential pullback or avoid the trade altogether.
Ignoring news: Major economic news releases during the London session can skew price behavior and result in false signals.
8. Automation and Tools
Many traders prefer to automate the London Breakout Strategy using Expert Advisors (EAs) or trading bots. These can:
Automatically detect the Asian range
Place pending orders at the correct levels
Manage stop loss and take profit
Exit trades based on customized rules
Some platforms also offer indicators or scripts that mark the Asian session box on the chart, making it easier for manual traders to identify breakout zones.
9. London Breakout Strategy vs. Other Strategies
Compared to trend-following or reversal strategies, the London Breakout Strategy:
Is time-bound: Works best within a 1–3 hour window after the London open.
Is rules-based: Makes it easy to backtest and refine.
Requires discipline: Avoid overtrading or jumping the gun before a breakout is confirmed.
However, it can be combined with other strategies for higher accuracy — for example, confirming a breakout direction with a trendline or Fibonacci level.
10. Final Thoughts
The London Breakout Strategy remains a staple in the arsenal of many day traders due to its clarity, repeatability, and potential profitability. By carefully analyzing the Asian session range and entering trades as volatility increases with the London open, traders can take advantage of early-morning momentum in a structured and disciplined way.
As with all trading strategies, the key to success lies in practice, proper risk management, and consistent execution. Whether you’re a beginner or a seasoned trader, mastering the London Breakout Strategy can offer valuable opportunities in the fast-paced world of forex trading