The London Daybreak Strategy has multiple variants and is very well-publicized, but is it profitable?

The London Daybreak Strategy and other London Open Strategy Variants attract traders seeking out a Holy Grail Breakout strategy to help them generate large profits in a short period of time.  Often, the London Daybreak Strategy is promoted as a manual trading strategy, which would be a problem for those in the Americas, Europe, and Africa due to the likelihood of missing a trade due to sleep schedules and work commitments.  Will the London Daybreak Strategy result in profits for you?

What is the Objective of the London Breakout Strategy?

The London Daybreak Strategy and the various names it goes under has no singular orthodoxy in terms of what is entailed.  This means that there are multiple strategies, but they all have these common elements:

1. The trade is placed during the time of the London or sometimes Frankfurt Open.
2. It’s a breakout trade.
3. It’s a trade that may not necessarily be executed during every single market open in Europe.

The objective is to test out several strategies with EURUSD, GBPUSD, and EURGBP and see how things go in a backtest.  Much like past backtests, there is a significantly different market dynamic from 2016 to present from the way the market was previously.  The tested period will be July 1, 2016 through June 30, 2018.

London Daybreak Strategy #1

This London Daybreak Strategy is a strategy that takes into account the previous three candles and what matters from the previous three candles (hours) prior to the London Open are the highest High and lowest Low, which will create a channel of sorts.

Once the price exceeds or falls below the Upper or Lower channel, a position was entered.

• The Stop Loss is the highest High for a Short Position.
• The Stop Loss is the lowest Low for a Long Position.
• The Take Profit is the difference between the highest High and lowest Low below the lowest Low.
• The Take Profit is the difference between the highest High and lowest Low above the Highest High.

EURUSD

GBPUSD

EURGBP

London Daybreak Strategy #2

This is a similar strategy to the first one.  The difference is that there is a filter (50 period SMA) and this one takes into account the previous FOUR candles.  Otherwise, it is exactly the same concept.

Go Long when:

• Price is above the 50 period Simple Moving Average
• Price exceeds the Highest High of the previous 4 candles.

Go Short when:

• Price is below the 50 period Simple Moving Average
• Price goes below the Lowest Low of the previous 4 candles.

Stop Loss:

• Short positions:  Highest High of the previous 4 candles.
• Long positions:  Lowest Low of the previous 4 candles.

Take Profit:

• Trailing Stop:  When up 40 pips, create a trailing stop of 30 pips.

EURUSD

GBPUSD

EURGBP

London Daybreak Strategy #3

This is a different London Open Breakout Strategy than the previous two strategies with the exception of a trading channel, but even then it is used differently.  In this case, the optional currency pair used (EURUSD) had a trailing stop of 30 pips that kicked in when up by 40 pips.

Currency Pairs Recommended:  GBPUSD (EURUSD is considered optional)

Timeframe:  15 minute chart

Indicators:  MACD with Standard Settings (12,26,9) and Exponential Moving Average (EMA) with a period of 50.

Long Entry:  MACD is rising and greater than 0 while the price is above the EMA of 50.

Short Entry:  MACD is falling and less than 0 while the price is below the EMA of 50.

Stop Loss for Long Entry: Price exceeds the previous High of the day.

Stop Loss for Short Entry:  Price goes below the previous Low of the day.

Take Profit for Long Entry:  Price goes below the EMA of 50.

Take Profit for Short Entry:  Price goes above the EMA of 50.

EURUSD

GBPUSD

Conclusions on the London Daybreak Strategy

Trading the London Open Breakout Strategy and its variants does not seem to yield results that necessarily inspire confidence.  These are trades that take place rather infrequently for each currency pair and are heavily biased toward taking one sort of a position over another.  In the case of the last strategy, none of the Long Positions produced a profit, which is astounding.

Trading gurus and course providers urging traders in the Americas to be awake for the London Open are doing their clients a great disservice urging them to trade the London Open in a manual fashion.  It is better to automate the strategy and allow people to sleep rather than worry about what is happening on the screen.

There is more to be discovered about the London Open and trading it for profit, but the results are mixed and there is a concern that this knowledge can be abused in the form of curve fitting.

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