The London market is the most active FX market of the 3 major financial centers and where most trades take place. Therefore, it is logical to deduce that most position traders will place their bets and enter their positions when there is maximum liquidity.
We are trying to make use of the trend that can develop out of this kind of activities. The opening range trend can be observed on most market opening times. These include the Asian and US market opens as well. However, we will stick with the London market hours as there is a greater chance of it happening.
This strategy is most effective on Europe currency pairs.
GBP/USD, EUR/USD, GBP/JPY and EUR/JPY.
This is an intraday trading strategy. The chart timeframe will be 1H.
The important hour we are looking at is from 6 GMT to 7 GMT.
At the close of the 6 GMT bar, place a Long/Buy order 2 pips above the high of the bar and a Short/Sell order 2 pips below the low of the bar.
Initial stop loss is the other side of the opening bar. When the trade goes into positive territory, trail your stop using the Parabolic Stop and Reverse indicator (or SAR). When using SAR to set stop loss point, always use the value of the previous bar that has closed, so it would not keep changing.
I would take only a maximum of 2 trades per day, if the first trade is a loser. Because, it price chops around, then there are not enough buying/selling strength around and it does not make sense to stay around!
Other ways to trail includes using a 20 EMA, a time stop (exit position at end of day). A very aggressive way to trade is to not set only initial stop loss and never trail it. Instead, I will only get out of my trade when a opposite trade signal appears. Meaning I can keep getting long and pyramiding for 5 days straight and getting out and turning short on the 6th day when a short signal appears. You can see some spectacular profits trading this way but it does not happen very often. Also, it greatly lowers your win rate. So there is a tradeoff here as always, between risk and return!