Of the many often referred to strategies in currency trading circles, the Big Ben strategy is one of the more recognizable. This currency specific system is designed to capture the first intra-day moves of the day. Most commonly it is associated with trading the GBP/USD as the opening of the London financial markets.
This is a classic morning breakout strategy for GBP/USD. It is easy to apply and offers the potential for long term gains.
The strategy takes its name from the Big Ben bell located the iconic clock at the Palace of Westminster in London.
It is so called as the strategy is aligned with the opening of the London markets. This is at 8am UK local time.
As is signified by the name, timing plays a significant role in this strategy.
Although the Forex markets operate 24 Hrs per day from Monday through to Friday, activity is seen in peaks and troughs.
The volume of deals reaches its highest across the European and US trading sessions. It then subsequently drops away as these key markets close out for the day. By the time the trading session in Asia comes on line, activity and volumes have notably reduced.
Of particular interest to traders of the Big Ben strategy is the drop off in volumes in European currencies over this period. During this session the market is often seen to ‘mark time’.
Trends set in the previous London session often drop away before resuming when the European markets come back on line the following morning.
The overnight range bound movement frequently provides ideal trading levels from which breakouts can occur.
The Big Ben strategy is commonly, but not exclusively traded on the GBP/USD. However other British Pound crosses and even some Euro based pairs make good candidates for trading at this important time in the Forex day.
The above example highlights the explosive moves that can often be seen shortly after the market open. Here after an initial stop hunt, the GBP/USD breaks higher.
It is also worthwhile noting that the bulk of transactions conducted on European currency pairs are placed through UK and European based dealers. The upshot of this is that dealing desks will tend to have a good insight into the supply and demand of a particular currency pair.
Institutional traders will also have good knowledge of where stops are situated. This helps to give them e a good indication of where prices for the upcoming session are heading after the initial early moves at the market open.
Retail traders should not be put off by this however.
Implementing The Big Ben System
Identifying key breakout levels to trade at the open can be as simple as plotting the overnight range. More sophisticated traders may want to go further and use some additional indicators. Daily pivots, moving averages or even Fibonacci levels can be used to identify relevant trading levels. However as with most strategies, setting out a simple and repeatable process and managing your levels of risk should be the priority.
It is worth noting that while trading can take place over a number of different time-frames and currency pairs, it is important not to skew your risk. At this time of day currency pairs often move in unison. A sudden drop in value of the United States dollar (USD) will be beneficial to all counter currencies.
This could prove to be good or bad for you account, depending on the direction you are trading. It serves as a useful lesson on risk control and money management.
Stick with trading one or two key pairs that don’t correlate at this time of day. You will then help to keep risk on your account under control.
When breakouts occur at this time of day they tend to be fast. Consequently it is important to define your risk levels prior to entering the market. You should also set out where you are going to exit for profit.
This means that you can calculate and plan your trades in advance.
The Big Ben trading strategy is ideal for new traders. It is also particularly good for traders who want to add a level of mechanical trading to the process. It helps to drive out fear and emotion from trading and lets you trade in a controlled manner. All importantly it can also be very profitable too.