The London forex session is the most active in the world, with about 35% of the global forex turnover happening there. It also coincides with the New York session for most of the year.
This article will cover the following topics:
- When does the London forex market start trading?
- Three important facts about the London trading session
- Which currency pairs are most suitable for trading?
- How to take advantage of breakouts during the London session?
WHEN DOES THE LONDON FOREX MARKET START TRADNG?
The London forex market operates from 3:00 AM Eastern Time (ET) to 12:00 PM ET. Among all the forex market sessions, the London session experiences the highest trading volume.
TIME IN ET.
OPEN | 3:00 AM |
---|---|
Close | 12:00 PM |
Overlap with Asia session | 3:00 AM – 4:00 AM |
Overlap with New York session | 8:00 AM – 12:00 PM |
THREE IMPORTANT FACTS ABOUT THE LONDON TRADING SESSION
1. The London trading session is characterized by its dynamic and lively nature.
Before the London session starts, the Tokyo market, known for its slower pace, transitions into this active phase. As liquidity providers from the United Kingdom become active, traders typically witness a surge in market volatility.
Once London begins to contribute price movements, the "average hourly move" of major currency pairs often sees a notable increase. To illustrate this, let's take a look at an analysis of the EUR/USD pair based on different times of the day. Pay attention to the significant rise in the average price movements, particularly after the Asian session concludes (marked by a blue dot at 3 AM ET).
In the London Session, support and resistance levels are more prone to being surpassed compared to the relatively calmer Asian session where volatility is typically lower.
For traders participating in the London Session, understanding and applying the concepts of support and resistance are crucial to their strategies. They can take advantage of the increased volatility during this session by focusing on breakout trading. When engaging in breakout trading, traders actively seek out highly volatile price movements that have the potential to continue for a significant duration. This approach allows them to capitalize on the momentum and potentially profit from the extended price moves that occur during the active and energetic London Session.
2. Lookout for the overlap
Keep an eye on the "overlap" between the London and US sessions, occurring from 8 AM ET to 12 PM ET. This period is marked by the simultaneous operation of the two largest market centers in the world. During these four hours, significant and rapid price movements are common due to the substantial influx of liquidity into the forex market. Traders should be particularly attentive during this overlap as it presents potential opportunities for substantial trading activity and noteworthy market moves.
The chart illustrates that volatility reaches its peak between 8:00 AM and 12:00 PM ET, corresponding to the period when the London forex session coincides with the New York forex session. Traders can capitalize on this heightened volatility by employing a break-out strategy. This approach seeks to benefit from the increased market activity and rapid price movements that occur during the session overlap. By carefully monitoring the market during this time frame, traders can identify potential break-out opportunities and make strategic trading decisions to potentially profit from the significant price fluctuations.
3. High Liquidity
The London forex session stands out as a remarkably fluid and dynamic trading period. It experiences a substantial influx of buyers and sellers, resulting in major currency pairs being traded at remarkably tight price differences. For day traders seeking to capitalize on quick market movements, the focus lies in identifying and leveraging trends and breakouts. This strategy effectively minimizes the expenses incurred in the form of spreads.
WHICH CURRENCY PAIRS ARE MOST SUITABLE FOR TRADING?
While there isn't a definitive set of 'best' currency pairs to trade during the London forex market hours, certain pairs do offer advantages by exhibiting reduced spreads due to the high trading volume. Among these are the major currency pairs, such as EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The London session witnesses an immense surge in trading activity for these major pairs.
During the overlap of the United States and Europe/London trading hours, currency pairs like EUR/USD, USD/JPY, and GBP/USD are notably impacted by inter-bank activities. As a result, they become particularly attractive for traders who prefer volatility in their trading strategies. These pairs experience abundant liquidity and tend to exhibit more significant price movements on average during this overlap period.
HOW TO TAKE ADVANTAGE OF BREAKOUTS DURING THE LONDON SESSIONS?
Implementing a London breakout strategy for trading breakouts during the London forex session is similar to employing such a strategy at any other time of the day, with the key distinction being the anticipation of increased liquidity and volatility during the session's opening hours.
When traders opt for breakout trading, their primary objective is to identify robust support or resistance levels to determine optimal entry and exit points for their trades.
The provided chart depicts a rising wedge pattern, which is characterized by a trend line with a resistance level. Eventually, this resistance level is breached, resulting in what is known as a breakout. This breakout signals a potential shift in the market direction and can present opportunities for traders to enter new positions or capitalize on existing trends.
The major advantage of employing this particular setup lies in effective risk management. Traders can maintain relatively tight stop-loss levels by closely trailing them along the support or trend line. Should the support/trend line eventually break, potential losses are limited. On the other hand, if the trading strategy proves successful, it opens the possibility of achieving a positive risk-reward ratio.
The heightened liquidity experienced during the London forex session, combined with the increased volatility, significantly enhances the likelihood of potential breakouts. This increased activity in the market creates more opportunities for traders to identify and capitalize on favorable price movements, making the London session an attractive time for breakout trading strategies.
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