This trading strategy has been and remains quite popular due to its simplicity and high efficiency. The secret of trading is that often the first impulse before the opening of London trading sets the movement of the pair for the day.
Accordingly, the task of the trader is to catch this momentum and easily take most of the movement during the trading session. To facilitate trading, a set of indicators is used: EMA 360 moving average (applies to Close), Pivot Point and i-CassierWorkTime to mark time zones on the chart.
The title makes it clear that the London bombings strategy works best on the GBP/USD pair, it is also allowed to use on other popular pairs – for example, EUR/USD or USD/JPY. The main thing is that the volume of trading on the London Stock Exchange on selected pairs was significant.
Actually, there are many options of the "bombongs" strategy, but they are all based on the same principle – the behavior of prices is closely monitored before opening of the London exchange and the market is entered on the breakdown of the horizontal channel.
How the London bombings strategy works
The classic version of the strategy involves trading exclusively during the London and the US stock exchange hours. The i-CassierWorkTime indicator is used to avoid calculating the time difference each time – it marks the working hours of London and New York on the chart.
To determine the direction of the trend, the EMA will be used, and the role of pivot boils down to giving the approximate position of the resistance and support levels. Also, when setting indicators (namely i-CassierWorkTime), you must take into account the difference between the terminal time and GMT+0.00.
Trading is conducted on the m15 timeframe. You should work on the strategy in the following order:
- you need to assess the direction of the trend before the start of the London trading session (5-10 minutes). If the price is located above the EMA, only longs are recommended, if below – selling should be a priority;
- pending order to buy/sell is located at a distance of 5-10 points from the price;
- SL is placed either on the bottom border of the horizontal channel in which the price was during the Asian session, or at the pivot level, whichever is greater. TP should be about 50% bigger than the possible loss, so the value of SL is respectively increased by 1.5 times. If there is a pivot level before it, the profits can be fixed in parts.
With regard to the position accompanying, the London bombings strategy requires to assess the situation next time only at the closing of the US session. If the deal is around 0 or in unprofitable area, it needs to be closed. If there is a profit, SL as a minimum should be moved to breakeven, or even some profits should be taken.
An alternative version of the strategy
Attentive market makers, of course, didn’t ignore such a method of trading. So now false pulses are often seen at the opening, as major players shake "ballast" in the form of the ordinary traders and then continue to move in the right direction.
This was the reason to improve the "bombings" strategy. However, the basic version is similar to the improved London bombings strategy only in the fact that trading is also carried out on the breakdown of the horizontal channel. The very idea has changed – earlier the trader tried to guess the price movement at the start, but the reverse version of the expert advisor offers to follow the market makers (trade is conducted on m30).
While trading in the original version was conducted only until the closing of the New York Stock Exchange, the pending orders in the improved version, on the contrary, are set only after the closure of America. In this range of price movement during the period from the opening of London is used to calculate the distance to set TP and SL.
Before placing the orders, the distance is measured between the High and Low of price for the period 09:00 – 18:00 GMT, let it be equal to 2X. Then, at a distance of X from the current price, the orders to buy and sell are placed. SL is not used, and the size of the TP is 2X. Regardless of the outcome, the position should be closed before the opening of the London Stock Exchange. If during the day the price has taken more than 60 points (the distance between High and Low), trading in such a case is not conducted.
Examples of transactions
Classic London bombings strategy can sometimes make deals with a jeweler's precision. This example is such a case. The figure clearly shows that at the start of trading on the London Stock Exchange there was an attempt to move down. Perhaps this is just an attempt of the market makers to “harvest stop-losses”.
But then the pair moved up and within minutes the deal closed by TP. In an ideal scenario, it should be so, and this is why the strategy is called London bombings. But more often the situation develops not so good, and the price either does not reach the TP or can’t determine the direction of the movement at all.
As for the reverse version of the strategy, many trading days are just missed, because the rules clearly say that if the price has taken more than 60 points from 09:00 to 18:00, the trade is not conducted. That's why the deals are not made so often.
Nevertheless, it has a zest and sometimes it turns out to take quite a powerful movement. In this situation, the trader simply follows the direction that market makers previously set. You can use a trailing stop instead of a fixed TP.
Recommendations on the use of the strategy
The London bombings strategy has an important advantage: indicators are assigned a support role, while the basis of trading is an attempt to follow the market makers. When this method of trading was just gaining popularity, its effectiveness was above all praise, but now the first impulse on which the entire strategy is built does not always indicate the direction of the price movement during the day.
Depending on the version of the strategy, it can use various indicators as filters (often MA, Pivot Point, Bollinger Bands, etc.). Among the modifications, the reverse version of the basic strategy stands out, unlike the original one, trading is conducted at night. However, it has a negative impact on earnings, as volatility at night is times less than in the afternoon.
As a result, the basic version of the expert advisor can be recommended for use with certain reservations – to observe the ratio of SL and TP, and trading is better to be limited with the GBP/USD pair. As for the reverse version, it is more reliable, but more or less serious results require a solid deposit (from $1,000). Otherwise, profits would be negligible. Source: DewinforexSocial button for Joomla