Big Ben Forex Strategy: London Breakout

The Big Ben strategy is a currency-specific trading approach aimed at capitalizing on the initial directional movement that often occurs during the early hours after the Frankfurt/London market openings, typically around 1 a.m. ET. This strategy primarily targets the GBP/USD pair due to its significant surge in trading activity during the London market hours, presenting opportunities for exploiting this volatility.

Here are the key rules for executing short trades with this strategy:

Wait for the pair to establish a new low at least 25 pips below the opening price after the start of trading in the GBP/USD around 1 a.m. ET.

Big Ben Forex Strategy: London Breakout

Once the pair reverses and trades 25 pips or more above the opening price, observe for the next reversal.

When the pair trades back below the intraday low established in step 1, initiate a breakout sell trade (at least seven pips below the London low).

Place an initial protective stop no more than 40 pips above the entry price.

After the market moves lower by the distance between the entry price and the stop, cover half of the position and trail a stop on the remaining half.

The logic behind this strategy lies in the behavior of the GBP/USD pair, which experiences lower trading volume outside European/London trading hours. The European/British interbank community possesses significant insight into the pair's supply-demand dynamics, often triggering stops on both sides of the market during the London opening. This creates new intraday highs and lows, setting the stage for the day's first significant directional move, which the strategy aims to capture.

Similar to opening-range breakout strategies in the S&P futures market, the Big Ben trade exploits the initial volatility following the market opening to secure profitable trades.

Trade examples

Figure 2 portrays a typical scenario of a Big Ben trade on a five-minute chart. At midnight ET, marked by the first vertical line, the market is quiet. The second vertical line indicates the opening of the Frankfurt market, where the GBP/USD initially dips, triggering sell stops. However, as London traders enter the market, shown by the third line, the sentiment quickly reverses upwards within 15 minutes. This reversal signals the beginning of the day's primary directional movement, with the GBP/USD dropping 90 pips before encountering buying interest.

Big Ben Forex Strategy: London Breakout

Example 2:

In Figure 3, we observe a variation of the Big Ben strategy characterized by an unusually wide opening range. Following the London open, the pound climbs 26 pips to reach 1.8583, establishing its upper limit. Subsequently, it faces selling pressure, leading to a decline of 65 pips, hitting a low of 1.8518 (as denoted by the horizontal line). Afterward, there's a 50-pip rebound before the pair reverses course, breaking below the previous low. Despite the wider range, traders can still find opportunity within this scenario by aligning with the fundamental principles of the Big Ben strategy.

Big Ben Forex Strategy: London Breakout

These trade examples illustrate the effectiveness of the Big Ben currency day-trading strategy, which aims to manage initial risk while capturing favorable moves during the early stages of the London trading session. Developed over years of observing currency markets, this approach seeks to exploit the underlying dynamics of the global forex market structure.

Post a Comment

Previous Post Next Post