Trading the London session

According to the Bank of International Settlements (BIS) Triennial Report from 2016, the London trading session accounts for around 35% of total average forex turnover – the largest amount relative to its peers. It also overlaps with the New York session throughout the year, which can make it more attractive to traders.

In this lesson, we’ll touch on its opening times, the ideal currency pairs to trade during the session as well as how to use breakout strategies when trading.

Key times to note for the London forex market

All times in the table below are eastern time (ET).

The London session is fast and active

The slower Tokyo market leads into the London session, and as prices begin to move from liquidity providers based in the United Kingdom, traders can usually see increases in volatility.

As prices begin to come in from London, the ‘average hourly move’ on many of the major currency pairs will often increase.

Support and resistance may be broken much more easily than it would during the Asian session when volatility is usually lower.

These concepts are central to a trader’s approach when speculating in the London session, as traders can look to use this volatility to their advantage by trading breakouts.

Look out for the overlap

The London and US sessions are the two largest forex market centers in the world. During the four-hour period where they overlap, large and fast moves can be seen as a large amount of liquidity enters the market.

High liquidity

Due to the high volume of buying and selling during the London session, major currency pairs can trade at low spreads. Day traders looking to target short-term movements may be interested in finding trends and breakouts to trade so as to reduce the cost they pay in spreads.

Ideal currency pairs to trade during the London session

There are no ‘best’ currency pairs to trade during London forex market hours, but there are some ideal ones that offer reduced spread costs due to the high volume. These include major pairs like EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

Perhaps the most affected by the overlap are the EUR/USD, USD/JPY and GBP/USD due to the interbank activities between the United States and Europe/London.

If your strategy is better suited for volatility, then these could be the trading pairs to watch.

How to trade breakouts during the London session

Trading breakouts during the London session is much the same as trading breakouts during any other time of day, with the additional fact that traders may expect an onslaught of liquidity and volatility at the open.

When traders look to trade breakouts, they’re often seeking firm support or resistance to plot their trades. The chart below shows a rising wedge pattern with a trendline resistance level marked. The resistance price level breaks when the London session starts.

Using sound risk-management tools can be very helpful when using this strategy. For example, you can keep stops relatively tight and use trailing stop-losses close to the trend line. If the support/trend line does break, you could limit your losses; keep in mind, however, that stop-loss orders attempt to close positions near a predetermined level but do not guarantee execution at a specified price. And if the strategy does prevail, it could lead to a positive risk-reward ratio.

The increase in liquidity during the London session coupled with the increase in volatility makes potential breakouts much more likely.