A Simple London Breakout

Here is a simple London breakout strategy based on a variation of my BoxFibo indicator from my London Progressive Strategy thread.

I simplified the indicator to place the initial entry points just between what would normally be the 27 and 38.2 fib extensions on both sides of the box. I didn't want to extend it past the 38.2 extension, although it can be feasibly accomplished, because the farther away we move our target, the tougher it is to reach the intended targets as it move in proportion to the box size. I wanted to make sure we had a higher probability of reaching our target.

The Profit Target line was carefully calculated to produce the same amount of pips as the box size. So, if your box size was 40 pips, your Profit Target lines should be exactly 40 pips from your entry point. Because of the smaller box size, this is not intended to grab a ton of pips, but to hopefully increase the success rate our trades.

You will need to place the indicator on a 15 minute chart. The start time is placed from 03:00 to 06:00 GMT, which is the 3 hours leading up to the Frankfurt open (if your broker's GMT time is not GMT +0, you'll need to adjust the times accordingly depending on your broker's GMT time). My broker is GMT +1 so I will start at 04:00 to 07:00. The obvious reason we put this before the Frankfurt open is to have the box drawn before the volatility kicks in and before the breakouts occur.

With regards to the trades that occur, you can handle them various ways. You can

A) take the first trade you get and just make one trade a night, win or lose, or:

B) take all of the trades that present themselves, it is your choice.

If you trade using option B) and still have open trades when the new box forms, you can leave the trade til it hits either you Profit Target or stops out, or you can close all open trades before the start of the new box around 03:00 GMT whether your trade is in profit or not, which is what I prefer to do so not to overlap the trades. I prefer the latter mainly because if I decide to incorporate any *Martingale type of approach, I need to know the new lot size I need to use before the next trade presents itself.

The nice thing is that you really don't see a lot of trades in a row that are losers. The most I've glanced at was 4-5 in a row, so you could experiment with a *Martingale style approach and increase lots on your losers to make up for your losses. Take 4-5 low spread pairs (i.e. Eur/Usd, Usd/Jpy, and so on) and play around with it over the next several days and over the weekend and then starting on Monday, the 12th, I will pick out a few pairs and show some examples of how the trades would have unfolded. You should see roughly around a 65-75% win ratio overall. The pairs I will be monitoring are:

Eur/Usd
Gbp/Usd
Usd/Jpy
Eur/Jpy
Usd/Chf

I highly suggest to not take trades if the box size is over 40-50 pips on all pairs. Generally, this is because a larger price movement has already occurred before the open and will make it more difficult to reach out targets. I'm not saying it's impossible, but use your common sense before you place any trades.

Good luck!

***Martingale strategies are inherently risky and not recommended unless adequate capital is readily available to protect your account from the possibility of a margin call. Please utilize proper Money Management at all times.***

*** Bug fixed in both indicators. Thanks to sangmane for the fix. New indicators and templates loaded.*** 4/12/2010

***Just a small note, I have updated the two indicators and templates in post #1 with the changes in the code that nightyhawk has made which included the MaxBoxSize parameter and the ability to change the level color. The Fibcolor input parameter was removed as I saw no changes when the input was changed. If you are using a 5 digit broker, please add an extra "0" to get the correct MaxBarSize.*** 4/15/2010

***A big thanks to Steve Hopwood for modifying one of his EA's to fit this strategy. The current version is from post #292*** 4/19/2010

***Indicator modifications done by sangmane and squalou are now incorporated to include that you can now change the color of the box if the box is greater than the MaxBoxSizeInPips input. You may also adjust the SessionEndTime color as well. You can now also change the entry level and profit target levels. The default levels in the indicators now are carefully configured to have the profit target from your entry match the box size. There is also a LevelResizeFactor parameter that has been added which allows you to fine-tune the levels if you want them different from the box size, but keeping the box as the basis? For example, if you set it to 0.7 (1.0 is the default for normal trading), then all levels will be adjusted as if the box was actually squeezed by this factor, still centered to the actual box "median Price". Post #357 has some example pics and a more detailed explanation. Thanks gain everyone for their contributions.*** 4/22/2010

***V7 of the Indicator has the following improvements:

- shows "Profit Zones" in green (can be disabled by input)
- displays the box size in pips below the box, and a "NO TRADE" sign for red boxes;
- puts a chart-Comment on top left corner with the main settings so you instantly know what they are for that chart;
- sets system-wide Global Variables for use with the treat below...

Squalou has modified Steve Hopwoods's "London Breakout script" (presented on post #138 and attached here), go read it to get the scripts basic usage.

This new script will take advantage of the improvements added in V7 indicator, so that you do not need to manually enter entry/TP/SL values anymore!!!

Here is how to use it:

-1- load the "London BreakoutV7.mq4" indicator (or higher version) on the chart;

-2- drag the script to the chart, and just click OK, that's it.

The script will automatically replace input values left to 0 with the corresponding entry/TP/SL levels for the BuyStop and SellStop orders that the Indicator has computed using your indicators inputs, so you don't need to manually input them. You can use the script on charts open with different pairs each. Use "F3" key to show the created GlobalVariables. You can change their values directly there, these will be the ones taken by the script. They will be updated automatically when a new box is formed the next day. *** 4/28/2010

***V8 has the following added inputs***

This version will allow to keep SL/TP levels into "reasonable" min/max limits on days with too-high or too-low pre-breakout volatility...

It has 2 more inputs acting as box size limiters.

Don't want your TP/SL levels go off the roof ?
Just set the "MaxExtentInPips" to whatever box size you don't want to exceed, and that's it.

And for those days where you think that the box is too small, and you could surely harvest more pips than what the tiny green strip suggests...
then just set the "MinExtentInPips" !

Of course, as usual, ignoring those values (default 0) won't change the behavior of the previous versions indicator... just to keep you feel at home...

Thanks to squalou for all the improvements. If you have any technical questions on the indicator or script parameters, please PM squalou directly, thanks.*** 4/29/2010

***Complete package is now added in a zip file which now includes:

Steve Hopwoods EA (modified by squalou)
Indicators (New V.9.1 Indicator)
Scripts

Any questions, please PM or e-mail squalou for specifics.*** 5/6/2010

***An alternative setting is currently being tested starting in post #647. The alternative settings and rules can be found in post #506*** 5/11/2010

***V4.0 version of the EA...

New features:

- Added Trailing Stop capability

New inputs:

TrailingStopPips(0)- pips to trail the StopLoss; when 0 no trailing is applied (fixed SL as before).

TrailingStopStep(1)- trailing SL will jump by this amount instead of trailing at every tick; (helps limit the number of sent orders, and therefore order rejections).

- Added profit lock-in after fixed profit:

"BreakEvenPips"- when "BreakEvenPips" is >0, SL is moved to BE+"BreakEvenProfitInPips" when price has reached BE+"BreakEvenPips". Works independently from "AllowHalfClose" option (but uses the same BreakEvenProfitInPips value); Will also be trailed if TrailingStop is selected; (inspired from Steve's MPTM EA...)

"MaxRisk"- if >0, then order size is the min of Lot input and calculated max Lot based on MaxRisk and Stoploss;

- All open/pending trades will be closed when the EA is unloaded;

- replaced order-related functions with "reliable" versions of them... (will retry 10 times at timed intervals if call fails).

- when MagicNumber is 0, a unique MagicNumber is created by the EA, MagicNumbers will be different for each pair/timeframes. This helps running the EA on different pairs/timeframes without having to manually change the MagicNumber.

- added Alerts when the Indicator Settings Global Variables cannot be found. The EA will stop trading in this case.

- fix: in V3.0, objPrefix default value was not set to "LB-" as it should have been, leading to error 130 "invalid stops". 5/20/2010***

Just so you can see the setup in action, we already have a trade completed on the Eur/Usd for a quick 22 pips! More detailed examples on next Monday. I will be out of town starting tomorrow, but I will answer any questions you have as I will have my laptop with me. See ya Monday!

What TF do you use. This will be important as the box will not be drawn until after the 7:00GMT candle has finished.

If it is on 5 min chart box could be smaller than 1 H chart etc.

A quick look at the chart above shows a 15 minute chart. Good catch , I will edit post #1 with that info, thanks.

do you use stop loss?

i read the initial post several times, downloaded the template but i couldnt get these simple things

1. where is your stoploss ? is it at the other end of box ? its not mentioned in the initail post

2. where will you put your buy order ? at 27 fib extension ? 38.2 fib extension ? if both are ok, why you need the other one ? cant we fix one number ?

3. if stoploss is at other end, then risk reward is less than 1:1, you mentioned 70-80% win rate, that would traslate to BE or a slight positive number. is that correct ?

4. in the template , i changed the times to 05:00, 08:00 (my broker is GMT+1), but the entry exit levels didnt change, but the box is redrawn

5. would you trade only europe pairs since this is london b/o ? do you have similar b/o for US ? which is the best pair to trade for london ?

6. you mentioned you can enter several times, we need to keep redrawing the box ? if so you take last 3 hours ?

It shows the stops on the indicator for you.

Again, look at the indicator. Your entry point is already there for you. The entry points are calculated to be just above the 27 ext. on the first indicator and just above the 38.2 ext. and the second version of the indicator. The extensions have nothing to do with the entry, they are just for reference. You are not being forced to use either one, I just added the second indicator as another option. Use whatever one make you feel comfortable using. Just remember, if you use the second indicator that your profit Target lines will be spread out more and more difficult to hit.

Yes, the R/R is less than 1:1, but not by much. Hypothetically, if we use the Profit Target and Stoploss ranges from the chart above and take 10 trades and use a 70% success rate, we would have this:

(7 x 22 pips)---154 pips minus
(3 x 31 pips)----93 pips
-------------------------------
total pips--------61 pips

Now, if you do 10 trades a day x 5 days in a week, you'll end up with 305 pips. I'd say that is a lot better than BE, wouldn't you? I know a lot of traders who would love to have just 20 pips a day, let alone 61! Yes, there are better systems out there, but I doubt there are very many as simplistic as this. Remember, there are people out there who praise the FAP Turbo and Megadroid EA's, and you only make 5-7 pip profit per trade and yet have 100-200 pip stop losses. I'll take this any day of the week.

I'm not sure what your asking, but the entry and profit target lines should change as the box size changes. Can you post a pic of what you're trying to explain, that would help.

The strategy works best with the GBP/USD. Because this pair trades lightly outside of London trading hours, the surge in trading every morning in the U.K. gives it a “real” market opening, which the strategy looks to exploit. Gbp/Usd trading is virtually nonexistent during Asian trading hours. When London opens, however, the Gbp/Usd accounts for nearly one-quarter of all forex trading. Currency rates with more continuous, 24-hour trading will have less of a distinct open/close as they pass through the different trading sessions. For example, the USD/JPY, which dominates Forex activity during Asian trading hours (78 percent of volume), still accounts for 17 percent of trading during European hours. So, as you can see the London trading session can affect every pair you trade, just pull up any chart and see for yourself. Looking at the diagram, you can see how the 4 majors have the highest activity in the London session.

No, you don't redraw the box. The indicator redraws automatically each day at whatever time is set in the parameters. Once the box is drawn after the Frankfurt open, all trades are based on these levels until a new box is drawn the next night. For multiple entries, once the price retraces back below our original entry point or reverses and hits the opposite entry point, you have the discretion to enter additional trades if you choose. I will show everyone more examples of this on Monday.

Also good information here:

http://www.forexfactory.com/showthread.php?t=183582

Regards
Mike

Thanks for the info mike1349, as I always tell people, my strategies are not set in stone and are always up for personal change to fit you own style of trading.

Thanks for posting your system. I like breakout systems, No need to sit in front of the charts all day! Just set our orders and stoplosses and get on with the day.

These systems do show profit long term and whilst they won't make you rich over night, they could do in the long run with the right leverage!

This seems to work on EUR/GBP with the 2nd indicator, very well. This is because the box is usually very small.

It does have a very good win ratio if the box is less than 30 pips!

I've been thinking about adding further indicators to filter out losing trades but actually I think indicators keep you out of more winning trades than save you from losing trades, so i'm not going to bother.

I'm going to start trading EUR/GBP on Monday 12th on live account. I'll let you know how it goes.

Might trade GBP/USD too but only if the box is <30.

Great comment, Every newbie out there thinking of starting Forex trading should learn this mindset first along with learning Money Management. I have built up my accounts over the years after learning the hard way that all these strategies and EA's that claim you can double or triple your account are a bunch of crap and are just there to drain your wallet. I've always believed that if your EA or trading strategy was that good, why sell it?

Thanks, keep us posted on your live trades since that is the best way to validate a trading strategy, live forward testing. The pairs I'm going to work with are the 4 majors pairs (Eur/Usd, Usd/Jpy, Gbp/Usd, and Usd/Chf) and also Eur/Jpy and Eur/Gbp. Since you can let us know about the latter, Eur/Gbp, I'll just update and analyze the first 5.

Again, it's good to see other traders change it up to fit their own style. I was thinking of doing something similar on the Usd/Chf, using the 2nd indicator and limiting the box size to only 30-40 pips. It does make sense as these two pairs do not have the range of the others.

Mer,
Thanks for sharing your system and indicators.

Jose

Not a problem, glad to share what I can as long as it can help out fellow traders. By the way, my fiance loves your avatar, lol.

Hi MEr,

First thanks for sharing this i think it has good potential this strategy, (indicator) really usefull. I came on a idea to filter out bad trades more sometimes it goes both ways you dont want that so how whe filter this.


-EMA 84 close.

Put a EMA 84 on your chart when the EMA is in the box for a day whe dont trade. It most be in the box when it is touching just the sides no problem then it is oke. when box is above EMA whe only looking for longs when price is below only shorts.

Oke Guys hope you got something on this

Thanks for sharing your system and indicators.

mason

Thanks for the strategy. Sure looks great on GU and GJ. There seems to be nearly no flaws on these two pairs. On back testing others EU and EJ and EUR/GBP only has 50% to 60% success rate while UJ seems to have 70-80 % success rate. I have tweaked the strategy to my taste a bit.

Here is my tweak:
The breakout is from 7 to 10 GMT. I take the trade 5 pips below or above the box and set my TP on fib value of 161.8. 0-100 being the low and high of the box. SL being 5 pips below or above the box opposite of my trade.

Here are my charts:

wow !!! great explanation. thank you so much mer071898. i will do paper trading for a week. will do major 4 pairs

Since US brokers not allow one to hedge, how do you get filter those false breakouts?

ingmarforex, I appreciate the input. One question, is the EMA set to close or something different? Let us know if you are testing it out and if has helped you out. For those who want to incorporate the 84 EMA on your chart, feel free to do so. I will be just utilizing the London Breakout indicator only on this thread for now.

You are welcome.

Glad to see it is working for you, I hope you have success with your tweak. I just want to make sure the thread doesn't get too bombarded with everyone's variation though. If you have a different strategy or variation, please open a different thread and discuss them there as I do not want to have any confusion from the original strategy, thanks.

I try to be as clear as possible but sometimes you just have to re-iterate what you say to make sure people fully understand everything. Feel free to ask any questions and I'll answer them the best that I can for you. Now keep in mind, I'm only using the major pairs because most trader's are familiar with them and are traded more frequently. You can use this on ANY pair, I just prefer to use it on pairs with low spreads to maximize my profit potential.

First off, There is no hedging going on, you are only in one trade on a pair at a time. You are either getting stopped out or have already hit your Profit Target before any other trades are being taken.

Mer

Forgot to ask, do you add on the spread to the entry levels? What are your thoughts, not sure it's going to make much difference.