As with most breakout strategies for Forex, the key principle of the New York Open breakout strategy is to capture any strong early moves at the start of the trading session.
Trading at this time aims to capture volatility at the opening of the market. In this instance it looks to capitalise on the swell in volume as US traders enter the market at the start of the trading day.
The opening of the US financial markets brings with it the volatility. This increase the potential for breakouts in price which can be used to capture profits. In fact any market open session can provide fertile hunting ground for those looking to put together a simple Forex system to capture breakouts.
The US financial markets open at 09:30 Eastern Time (EST). This is when the New York Stock Exchange (NYSE) and NASDAQ open their doors for business. Trading runs throughout the day with both exchanges closing at 16:00.
The New York Open generally sees a peak in daily trading volumes. While in terms of overall volume the US session is the second busiest Forex session (London is first), the overlap with the London markets on opening makes for the high point of deals during the day.
There are various permutations of the New York Open breakout strategy. Most of these focus on low chart time-frames such as 5, 15 or 30 minutes. A breach on these charts of a previous candle ‘high’ or ‘low’ can be taken as a signal to go ‘long’ or ‘short’ on the market.
It is also possible to construct a strategy focusing on a larger range of preceding price action. The entire London trading session could for be used to make this a typical box breakout Forex strategy. The high and low point reached can be used as points on the chart to enter the break.
As with any trading system you need to make sure that you define your strategy thoroughly before trading it. Despite what some nameless strategies on the web may advise, simply placing a stop 20 pips out and entering on a high candle break is not a strategy in itself.
As a trader your method should remain simple. All you need is to have an awareness of some key points on the chart.
Typically previous levels of support and resistance, candle highs and lows are good indicators to focus on. When combined with momentum indicators they can give good places to locate your stops.
Just as you need to define your entry, you also need to define your exit. Rewarding yourself with profit on a trade is important for consistent trading success. Take a look at this in conjunction with your stop loss. This will give a sanity check of the risk versus reward on the trade.
A key benefit of trading breakouts is that you can plan your trading in advance. It is easy to define entry, exit and potential profit prior to the actual breakout. All you have to do when the market opens is ‘pull the trigger’ if the conditions identified are met.
Planning your trades in this manner makes this a strategy particularly suitable for new traders. It is easy to get to grips with and adds a mechanical element to the trading process. This can help to overcome many of the pitfalls that new traders encounter. Particular issues include emotional inhibitors which can arise from trading without a clear plan and entry or exit strategy.
Trading the New York Open requires you to ask questions of your strategy and also yourself. In fact the two are inexplicably linked. So in devising your strategy to trade the New York Open make sure you have both asked of yourself and answered any questions that the market may throw at you.