DailyFX Tips & Picks: How to profit from the London FX volatility breakout
LIVING in London has considerable value for foreign exchange traders. While the FX market is truly global, its heart and soul still reside in London.
An estimated 30 to 35 per cent of foreign exchange flows transact during the London trading session, and this amount of liquidity can have numerous benefits for the trader. The most important of these is the opportunity to execute some very exciting strategies, like “the London Breakout”.
While Asian markets tend to be quieter or slower-moving, the opening of London will usually introduce an onslaught of liquidity that can create fast and volatile price movements. The benefit to the trader is that these price movements can trend for a prolonged period of time, allowing for outsized profit potential given the risk taken on when initiating the position.
Traders can look to the four hours immediately preceding the London open to find the high and low prices that were traded in any currency pair. Traders can then place an entry order to buy above the high and an order to sell below the low and, once either of these levels gets broken, initiate their position.
As with any strategy employed in any market, money management is of the upmost importance since these movements can be volatile. For more about money management in the FX market, visit http://bit.ly/LondonBreakMoneyManagement and to learn more about breakouts http://bit.ly/TradingTheBreak
James Stanley is a senior instructor of trading at DailyFX.
JStanley@DailyFX.com
Twitter: @JStanleyFX