Opening-range breakout techniques has long been favorite of intraday stock index traders. A similar technique can be used in the currency market to capitalize on price moves in the British pound.

Day trading the foreign currency (forex, FX or interbank) market is definitely one of the more challenging endeavors an aspiring trader can pursue. The higher degree of leverage (as high as 50:1 or 100:1) available in this market can increase profits, but it equally accelerates losses.

This makes the issue of trade timing and selection that much more critical to success. Because of the lack of volume data in the spot currency market (i.e., there are no Level I or II quotes, or time and sales data), newer traders will find they will need to develop much more disciplined strategies that rely less on broader market dynamics and more on raw price action and individual market “micro structure”.

The Big Ben strategy exemplifies this approach. It is a day-trading technique that takes advantage of the shift from trading from one market center to another in the 24-hour forex trading environment.

The Big Ben strategy
Big Ben is a currency-specific trading strategy designed to capture the first directional intraday move that often occurs within the first few hours after the Frankfurt/London market openings, which begin at approximately 1 a.m. ET. The strategy works best with the British pound/U.S. dollar (GBP/USD) rate.

Because this currency rate trades lightly outside of London trading hours, the surge in trading every morning in the U.K. gives it a “œreal” market opening, which the strategy looks to exploit. Figure 1 shows pound/dollar trading is virtually nonexistent during Asian trading hours. When London opens, however, the pound/dollar 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 money centers.

For example, the dollar/yen rate (USD/JPY), which dominates forex activity during Asian trading hours (78percent of volume), still accounts for 17 percent of trading during Euro pean hours.

Before explaining the specific logic behind Big Ben strategy, let’s take a look at what needs to occur for a trade to set up.

The rules
The following rules are for short trades, but the strategy can be reversed to trade on the long side.
Setup:

1. The pair makes a new range low at least 25 pips (a pip is the forex equivalent of a tick, or minimum price fluctuation) below the opening price after the early Frankfurt/London trading in the GBP/USD rate begins around 1 a.m. ET.
2. The pair then reverses and trades 25 pips or more above the opening price.
3. The pair then reverses once again to trade back below the intraday low established
   in step 1.
4. Sell a breakout (at least seven pips) below the London low.
5. Once filled, place an initial protective stop no more than 40 pips above the
   entry price.
6. After the market moves lower by the distance between the entry price and
   the stop, cover half the position and trail a stop on the remainder.

These simple rules position you to profit from common behavior that can occur in the pound/dollar when the London/European market opens. (Kristian Kerr)

continue reading this strategy on this post BigBen Strategy-The Logic

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