How to Profit from UK Forex Market Hours

In this article, we'll delve deeper into the timing of the UK market hours, strategies applicable during this time, illustrated examples from charts, and other helpful tips.

The UK market hours are highly significant for traders as this session is the most volatile compared to the Asian, Australian, or US sessions. Trading in the UK session kicks off at 3:00 am EST and continues until 12:00 pm EST.

During this time, major banks and institutional traders are very active in the forex market, resulting in significant price fluctuations. Furthermore, there's an overlap between the UK and US sessions from 8:00 to 12:00 am EST, making it the busiest period of the day.

To gain a better grasp of the volatility distinctions during UK forex hours versus other market sessions, take note of the price range table for various currency pairs below.

Great currency choices to trade during UK market hours include the Euro (EUR), British Pound (GBP), US Dollar (USD), and Japanese Yen (JPY). As such, forex traders tend to look for opportunities in EUR/USD, GBP/USD, EUR/GBP, USD/JPY, EUR/JPY, and GBP/JPY.

Strategy to Make Profits in the UK Market Hours

An effective trading strategy to profit in UK market hours is the London breakout strategy. It is a forex day trading approach designed to capitalize on breakouts at significant support and resistance levels.

As trading volume rises due to increased participation from London traders, prices often break out of recent trading ranges. Here's the step-by-step on how to profit using the London breakout strategy:

1. Identify the London Trading Range:

• Before the London market opens, find the range established during the Asian session. Draw support and resistance lines based on the last three candlesticks within that range.
• For instance, if you're trading GBP/USD, locate the range formed before in the Asian session.

2. Set Pending Orders:

• Buy Stop Order: Place a buy stop order 2-5 pips above the resistance zone of the Asian session range).
• Sell Stop Order: Position a sell stop order 2-5 pips below the support zone of the Asian session range).

3. Activate Orders:

• Once either the buy stop or sell stop order is triggered, immediately cancel the other pending order. If your broker provides OCO Order, you might not need to cancel manually.
• If the price surpasses the resistance, the buy-stop order will be activated. If it falls below the support, the sell-stop order will be triggered.

4. Manage the Trade:

• If the price moves in your favor: Determine a specific take-profit level based on your risk-reward ratio, or ride the trend as long as it persists.
• If the price moves against your favor: Instead of using a price stop loss, consider closing the trade after a set duration (e.g., one hour) if the breakout doesn't occur as anticipated.

5. Additional Considerations:

• Fade the London Open Breakout. Sometimes, the initial breakout doesn't sustain so contemplate trading in the opposite direction.
• Consider prioritizing ideal currency pairs. The London Breakout Strategy is particularly effective with currency pairs involving the British Pound (GBP), like GBP/USD or GBP/JPY.

Case Study — Making Profit During UK Market Hours

To make things clearer, let me illustrate the London breakout strategy during the UK market hours.

1. In the H1 chart below, it's clear that the price is currently in a bearish trend. This is indicated by the price forming fresh lower lows and breaking through a support level.
   
   
   
   
2. Given the downward trend, we'll initiate a sell position if there's a breakout on a smaller time frame (M15 or 15 minutes) when the UK market hours commence (the green zone). Here, we can see that once the UK market hours begin, the price breaks through the support level, signaling us to sell.
   
   
   
   
3. Following the entry, the price continues to drop until reaching the take profit target. The sell-setup of the London breakout strategy ends with profits.
   

How is the Backtest?

To check how well the London breakout trading strategy works, we ran a three-month backtest from November 2023 to January 2024 on the GBP/USD pair using a 15-minute (M15) time frame.

Sell or buy positions are initiated based on the breakout that occurs. We utilize a risk-reward ratio of 1:1. Here is the result:

The backtest results show that the London breakout strategy isn't profitable during UK market hours. However, this doesn't mean it's a bad strategy overall. We just need to consider more factors than just the breakout itself.

If we look at the bigger picture and use a better risk-reward ratio, the outcome could be positive and profitable. So, traders using the London breakout strategy in forex market hours should focus on two things: consider the bigger context or trend and use a good risk-reward ratio, like 1:2 or higher.

Tips for Trading in the UK Market Hours

In the UK Forex market hours, there are a lot of profitable trading opportunities. The opportunities demand the significance of timing, with a focus on the highly volatile London session when the price often fluctuates.

The London breakout strategy emerges as a powerful tool for capitalizing on breakouts at crucial support and resistance levels, with a detailed guide for implementation. Essential trading tips highlight the importance of recognizing higher perspectives and entering trades at significant levels.

For instance, if you spot a breakout of a support level on the 15-minute chart, consider the trend conditions on the 1-hour or 4-hour time frame. Enter trades if the breakout direction matches the context or trend on the 1-hour or 4-hour chart.

Before using the strategy in your real account, you can use it first with a demo account to learn the details first. Once you are comfortable and understand the details, you can move to a real account.

In addition, paying attention to the fundamental backdrop might be useful too. You can keep yourself updated on UK's economic events to avoid trading against the market.