TL;DR: Define the pre-London range (the “box”) during the Asian session; after the London open, trade the breakout when price exits the box with a clean momentum candle. Use a stop just inside the box (or under/above the breakout candle), size positions so SL = 0.5%–1% risk, and target fixed R:R (e.g., 1:1 then trail to 1:2) or the next significant higher-timeframe level. Prefer trades aligned with the higher-timeframe bias and avoid news windows.
Table of Contents
1. Introduction
The London breakout is a classic session-based approach that seeks to capture the increased liquidity and volatility when the London market overlaps or opens. The method is simple: build a compact range during the quieter Asian hours, then trade a decisive breakout of that range when the London session begins. This article gives a clean, rule-based variant suitable for FX majors and liquid indices.
2. Strategy overview
- Instrument: Major FX pairs (EUR/USD, GBP/USD, USD/JPY) and liquid indices.
- Primary TFs: build range on H1 or on a lower TF box (e.g., M15–H1); execute entries on M5–M15.
- Session focus: London session open (use broker/server time to define).
- Core idea: Predefine the Asian/pre-London box; enter on a confirmed breakout with momentum; manage SL/TP by box size and higher-timeframe context.
3. Setup
- Define the box: mark the high and low of a pre-London window (typical choices: last 4–6 hours before London open, or a fixed clock interval you prefer). Save as horizontal lines/rectangle.
- Chart layout: main execution on M5 or M15; keep an H1/H4 for trend bias.
- Optional indicators: none required. A 50 EMA on H1 or tick/volume can be used as a filter.
- Trade window: focus on the first 60–120 minutes after London open; avoid late session noise.
4. Trading rules
4.1 Filter / Bias
- Prefer breakouts that align with higher-timeframe bias (H1/H4). If H1 shows a clear trend, favor breakouts in the trend direction. If bias is unclear, reduce trade size or skip.
4.2 Signal (breakout confirmation)
- Signal = a clean breakout candle that closes outside the box with momentum (large body, small opposite wick), or a second confirmation bar that extends the breakout. Avoid weak, wick-heavy candles.
4.3 Entry
- Aggressive: enter market on the close of the breakout candle.
- Conservative: place a Buy Stop / Sell Stop a few pips beyond the breakout high/low (buffer to reduce false breaks).
- Alternatively, wait for a pullback to the broken edge and enter on rejection for higher probability.
4.4 Stop-loss
- Tight SL: inside the box — e.g., just inside the opposite side of the box or just under/above the breakout candle wick.
- Wider SL option: below/above the most recent swing if the box is small and you need more room. Always ensure SL size fits your % risk rule.
4.5 Take-profit & Trade Management
- Base TP choices:
- Fixed R:R, e.g., 1:1 initial — move SL to breakeven when first target hit, trail to aim for 1:2+.
- Scale-out: close portion (e.g., 50%) at first target, let remainder run to next key level (daily/weekly S/R).
- Momentum extension: if breakout shows strong continuation (volume/tick spike or follow-through candles), trail with ATR-based trailing stop.
4.6 Invalidation
- Cancel the trade or move to break-even if: price re-enters and closes within the box; a high-impact news release occurs; or the breakout lacks follow-through within a defined time (e.g., 30–60 minutes).
5. Position sizing & Risk Management
- Risk per trade: 0.5%–1% of account equity (adjust to personal tolerance).
- Calculate lot size based on SL distance so monetary risk = chosen %.
- Session limits: max 1–3 breakout trades per session; stop trading for the day after X% drawdown.
- Consecutive loss rule: pause and review after 2–3 consecutive losing trades.
6. Backtest & Validation
- Backtest across multiple months and different market conditions (trending, range, high-volatility news days).
- Include realistic spreads, slippage, and order fills. Track win rate, average R:R, expectancy and max drawdown. Use walk-forward testing where possible.
7. When NOT to trade
- Avoid trading within ±15–30 minutes of major economic releases affecting the currency or instrument.
- Skip breakouts on low-liquidity days (holidays) or when spreads widen.
- If the breakout occurs against a strong higher-timeframe level without retest, be cautious.
8. Variations & Optimizations
- Opening-range variation: use the first 30 minutes after London open as the defining box and trade its breakout.
- Time-filtered entries: only take breakouts within the first 60 minutes, or require a second confirmation bar.
- Volatility-adaptive buffer: set breakout buffer as a percentage of box size or ATR instead of fixed pips.
- Multiple timeframe confluence: require H1/4 alignment or momentum on H1 for higher conviction.
9. Pre-trade checklist
- Pre-London box drawn and labeled.
- Higher-timeframe bias checked (H1/H4).
- Spread acceptable and no imminent high-impact news.
- SL, lot size and TP plan calculated (risk ≤ chosen %).
- Session trade cap and daily stop-loss set.
10. Conclusion
A disciplined London breakout routine can capture session-opening volatility with clear rules: define the pre-session box, require clean breakout confirmation, size risk carefully, and manage trades using fixed R:R and trailing techniques. Start on demo, validate across market regimes, and apply strict session and loss limits.
11. FAQ
Q: Should I use a fixed pip buffer for all pairs?
A: No — set buffer relative to instrument volatility (ATR or % of box) rather than a fixed pip value across different markets.
Q: Can this be automated?
A: Yes — the rules are straightforward for EA implementation, but slippage and breakout fakes are execution risks to consider.
