Every day, over five trillion dollars worth of currency trades on foreign exchange (forex) markets. Wouldn’t it be great if there were an easy way to get your hands on even a tiny amount of that?
It turns out, there is an easy way to make money in forex and it’s called the London Daybreak Strategy.
In this article, we’ll tell you everything you need to know about using the London Daybreak Strategy to win big. So read on and trade with confidence.
What Is the London Daybreak Strategy?
First, there are three forex trading sessions: the Asian session, the London session, and the New York session. Nearly all the currency trades on earth happen during one of these three sessions. And because they’re scattered around the world, at least one of these sessions is active at all times.
That means you can make and monitor currency trades at all hours of the day.
Of these three sessions, the London session sees the highest trade volume. The London daybreak strategy takes advantage of this increased volume to give you big returns.
The strategy operates on the principles of momentum trading. It assumes that currency trends in the Asian session (which is active before the London session) accelerates into the London session as volume and liquidity increase.
No forex trading method is foolproof, but the London daybreak strategy is one of the safest and most effective strategies you’ll encounter.
So, how do you use this strategy?
Tools You’ll Need
Using this strategy requires a few analytical tools: support and resistance lines, the 50 SMA, and candlesticks. We’ll go through them one by one (you can skip this part if you’re already an expert).
Support and Resistance Lines
A support line represents the price floor for the currency pair. Usually, the price of the currency pair won’t go below the support line, and if it’s getting close, it’s a good bet that the price will start to rise again.
A resistance line is the same concept, but it’s a price ceiling instead of a price floor.
The 50 SMA
This is the simple moving average over fifty days. In other words, it’s the average of the currency pair’s fifty most recent closing prices.
Some people use the 50 EMA, which is the exponential moving average over fifty days. The exponential moving average is more complicated and it gives more weight to more recent prices when calculating the average.
You can use either one for this strategy. And either one will be available online or in your trading software.
Currency prices can be erratic, but candlesticks allow you to visualize them in an organized way. A candlestick represents all the trades that occurred in a certain time frame (in our case, within a given hour).
The candlestick has a wide middle: the top of this wide section is either the opening or closing price, whichever is higher, and the bottom is whichever is lower. The candlestick also has two stems reaching up and down from the wide middle section. The top stem ends at the period’s highest price, and the low stem ends at the period’s lowest price.
We’ll be using the candlesticks from the currency pair’s hourly chart for this strategy.
How Do You Execute the London Daybreak Strategy?
First of all, we should warn you. The London session opens at 8 AM London time. This is early enough if you’re a Londoner, but if you live on the East Coast of the United States, it means you need to be awake at 3 AM. While that may sound awful, we assure you, it’s worth it.
Before you begin, check the economic calendar. If there’s big news on the horizon, consider holding off on the strategy. It’s much safer if there aren’t outside influences affecting currency prices.
Now that everything’s in order, let’s begin.
When executing this strategy, focus on the most highly traded currency pairs. GBP/USD is probably the most used pair because so many pounds trade in the London session. But other common pairs are EUR/USD and JPY/USD.
Before the trading session begins, print out the daily charts for your currency pairs of choice. You can use your favorite trading software if you’re not into print-outs. Draw the relevant support and resistance lines.
Then, do the following for each pair.
If the price is below the SMA 50 and it’s not near the support line, set a command to trade short. Set the command to trigger if the price goes below the lowest price of the last four candlesticks. In other words, if the price keeps falling, go short.
Set a stop loss at the highest price of those four candlesticks to ensure that you don’t lose too much money if the price turns around.
If the price is above the SMA 50 and not near the resistance line, do the opposite. Set a long trade to trigger on the highest price of the last four candlesticks. And set a stop loss at the lowest price.
But you’re not done. This strategy requires you to stay involved throughout the trade.
Specifically, every hour update the stop loss to be equal to the lowest (or highest) price of the previous three candlesticks.
If you haven’t hit your stop loss by the end of the day, either cash out and walk away with your earnings or continue trading in the New York session.
If all that sounds complicated. Take out your favorite Forex software (or pencil and paper) and give it a try. We promise it’s simpler than it sounds.
It’s a great way to take advantage of momentum trading on a liquid and volatile market.
Start Making Money!
If you’re new to forex trading, the London Daybreak Strategy is a great way to get your feet wet. With a little dedication, you’ll be making money in no time.
Once you get the hang of it, read up on how to use Forex signals and take your trading to the next level.
There’s a lot of money to make in Forex trading. If you’re willing to put the time in, that money can be yours. So get started!
If you found this article helpful, be sure to check out our blog to learn more about the ins and outs of forex trading.