Know your sessions: trading the London session

We’ve already looked at the New York and Asian sessions, but, being based in the UK, I managed to overlook the session that’s right under my nose: London.

Plenty of traders Stateside bemoan the fact that they are tucked up in bed during the London open … a dynamic time in the markets, as Europe picks up the mantle from the Asia session.

We really shouldn’t take for granted just how well-positioned the European markets are for catching peak activity as the sun rises and sets across the planet and traders swing into action …

Five London-session patterns worth knowing

1 • London is the global FX hub

The UK captures roughly 38% of global FX turnover, which is roughly twice the US share. So, its importance isn’t just about how its time zone falls – it’s the biggest FX centre in the world.

2 • Asia follow-through opportunities

You’ll probably be familiar with seeing that tight overnight trading range from the Asia session that we often wake up to in Europe. Asia can spend hours building a relatively tight range – once London dealers and institutions come online, much deeper liquidity hits that range, which offers a couple of interesting opportunities:

• Look at moves from Asian data releases. In the thinner Asian hours, the initial reaction can stall or retrace. If the news has genuinely changed the market’s view, fresh European order flow can give that move a second wind.

• Watch the Asian high and low around the London open – a break of one of these levels can become the day’s directional move.

3 • Cable breakout opportunity

While 8am is the LSE cash session open, there’s a lot going on before that. Major ONS releases are commonly published at 7am, so the 7–8am window can give important insights.

A popular play is the GBPUSD opening-range breakout setup: mark the high and low made between 7am and 8am, then look to trade a break after 8am.

Bear in mind that the London open also comes with a surge of volatility, so is prone to spikes and false breakouts.

4 • Midday lull trap

Don’t expect the opening activity levels to set the pace for the rest of the day. The middle of the European session, before NY comes online is often quiet, with consolidation or fading of earlier moves. This is especially marked if there’s a major data announcement due for the US markets around lunchtime.

This is the trap: assuming that because the morning move has fizzled out, the interesting part of the day is over. As New York traders arrive – often accompanied by major US data – liquidity and volatility can pick up again … expect a surge of activity … and fresh price moves.

You can find more about the US open here.

5 • Teatime price reckoning

Huge amounts of institutional business are benchmarked or hedged at around 4pm UK time. This pushes price towards an extreme. Once that reckoning has passed, the order-flow pressure eases off and we may see some of the move unwind.

For us small-time traders, what that means is it’s worth watching for a local high or low around 4pm, which may be followed by a fading of the afternoon’s move.

You can see this happening on the AUDUSD we looked at earlier. And here again across a few days on USDCAD …

Applying patterns

The patterns that I’ve described above won’t appear like clockwork everyday – no market behaviours are that reliable.

Think of them as checkpoints rather than signals. As London wakes up, as the morning activity fades, as New York joins in, and as we approach the 4pm Fix, the character of the market can change.

Knowing when those changes tend to happen gives us a framework. Then, rather than blindly expecting a pattern, we can watch for the days when the market starts to follow it.

With a high-volatility market session, we should always be ready for sudden spikes and fast moves. But having a picture of how trading sessions are structured will give you a framework to build your trading around – and better position you for success.

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