DailyFX Tips & Picks: Understanding the nature of the London forex session

Trading the London forex session can be an eye-opening experience; the movements are hefty and trend-following traders tend to perform best during these hours. The reason for this is that the market’s bias will be quite consistent until New York joins in the afternoon.

This means that, if the day starts out with a stronger US dollar, it is highly likely that this strength will persist until New York starts trading. Going against the market is futile, and profit-taking or counter-trading is better off waiting until the afternoon. So the next time in the morning when you see the market trading strongly in a firm direction, going with this flow may not be such a bad idea.

Using euro-dollar as a benchmark, analysing 1,434 trading days and looking at a sample from 2007 to 2013, we know that, after 8:30am GMT, the market will often have made up its mind. Any low/high created before this point will often be the low/high of the day. This bias has been shown to dominate the market until 3:00pm GMT.

At this point, the US stock markets will have been open for 30 minutes, with the majority of volume already executed. It will also be 10:00am in New York, and most of the FX transactions of US-based corporations will have been done. The bias from the London session will have dispersed and a new intraday high/low may have been created.

Alejandro Zambrano is a DailyFX analyst.
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