Traders Tip: The opening hour of the UK Market
If there is a need to catch a worm every morning, then it is a good idea to watch prices dance between the high and the low created during the first hour of the UK session. Since the UK session represents roughly 70 percent of the trading volume in the currency market; watching the high and the low of this market open can often show the major battle lines drawn. Active trades and Swing trades can often be found near these battle lines. One can expect that bigger than usual stop and limit orders might be created in the 8am GMT hour of the largest market on earth. With this in mind, it is common to see prices get caught between the extremes of 7am to 8am GMT(or 3am to 4am Est.) and consolidate. If prices can become bound by the high and low of the first hour of the UK session, then the same tension created to hold prices into consolidation can be transformed into the fuel to break prices out above or below the 8am GMT candle. A common strategy for trading this candle would include “straddling” the highs and the lows of the candle by placing a resting order to buy above the high of the 8amGMT candle and a resting order to sell below the low of the 8amGMT candle.
There are more than just straddle opportunities referencing the 8am GMT candle. Start by marking the 7am to 8am UK open, by placing a support line at the lowest low created within this hour and draw a Resistance line at the highest high created within this hour.
Sometimes prices will be in a mood to consolidate inside the high and low of the 8am GMT candle. Sometimes prices will break above or below the 8am GMT and make most of the market’s average daily range after leaving the bounds of the 7 to 8am reference point. One could quickly start getting experience seeing the market ebb and flow according to the above description by trading your demo. One can also study many examples by scrolling backwards on your charting platform and “backtesting” your preferred pairs. It is suggested to study the trading activity that occurs after the 7am to 8am GMT UK open has commenced itself. This will allow you to gain experience by watching prices test, hold and break away from the 7am to 8amGMT candle reference point.
Having a working knowledge of the basic bullish and bearish candlestick patterns can aid one into the interpretation of the ebb and flow of prices after the 7am to 8am GMT high/low. For example; a bullish engulfing candle or a tweezer bottom pattern above a support level may add as a sign that prices are holding the support line and prices may bounce upwards. On the flip side, a bearish Evening star pattern underneath of a support level may be a sign that prices have not only broke support but have been reluctant breaking back above support and holding the level so a continuation lower would be expected.
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Replies to This Discussion
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Permalink Reply by michael " bobert" msbfusion on
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great post very informative, what a gift thank you david p, over and out msbfusion
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Permalink Reply by Ann Carder on
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Excellent tip and thanks for sharing. Glad you are back David. Ann Carder.
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Thanks Michael and Ann. Glad to be back:) Happy Trading!!
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Forgot David, what time light is used on the illustration or does it work all. Thanks, Ann
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Good Question Ann. I would start with the hour bar to simply recognize the high/low. If your a swing trader, you might keep your hourly chart open but if your more of an active trader then you may want go down to a 15 min and 5min chart to watch prices dance between the high/low support/resis lines.
Ann Carder said:Forgot David, what time light is used on the illustration or does it work all. Thanks, Ann
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In todays alerts I include a trade that used the UK open strategy. I wanted to include today's chart to help illustrate how to trade this strategy.
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gbp 080608 15 min.jpg, 182 KB
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Today's trade was a whipssaw where prices broke both the top and the bottom of the "3am-4am est" high and low. Breaking the top could have yielded an active trader with a max profit of roughly 25 pips and may have created a loss to swing trader. If a trade was taken when the low was taken out, that short would have yielded a max profit of roughly 55 pips. If you were a swing trader you may still be in this trade from yesterday, so taking profit at todays lows would be optimal to locking profits.
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