Ichimoku Trading: Signals at the London Open

For a general introduction to Ichimoku trading,  please refer to our Indicator Spotlight newsletter. In this post we follow-up on a specific Ichimoku trading setup, using the professional version. Specifically, we’ll outline how the Ichimoku can be used in conjunction with the London Breakout. A recording of a webinar event discussing this approach can be found here:

The London Breakout

The London Breakout is a well known Forex strategy centered around the London open. However, since the UK voted for leaving the EU, there looks to be more activity around the Frankfurt open. This moves the EU open forward one hour. The idea is simply to identify Ichimoku trading setups by locating breakouts signals following the European session open.

The breakout levels are found by looking at the high and low points set during the final hours of the Asian session. This is a 3 hour time window from 5:00 to 8:00 CET, when the markets open in Frankfurt. During this time period, the Multi Timeframe Opening Range indicator is used to define the High and Low areas of the range. The Ichimoku indicator is used to confirm whether the signal is accompanied by a trend and momentum bias. Furthermore, once a position is entered, the Opening Range is used to determine the Stop Loss and Profit Target levels.

ichimoku trading

Range Weighted Average Price

Also, we look to align the breakouts signals with the broad and intermediate bias. This is done by looking at the Monthly and Weekly Range Weighted Average Price (RWAP). The RWAP is the less know “cousin” of the Volume Weighted Average Price (VWAP). Essentially, it is an important price benchmark that reveals institutional participation and dynamic support / resistance levels.

RWAP

Monthly Range Weighted Average Price

However, Forex instruments are not traded at a centrally located exchanges. The volume data is therefore unlikely to be representative of the underlying market. Using VWAPs with Forex instruments should therefore be carefully considered. Because volatility is roughly proportional to the square root of volume, a volume-weighted average can be mirrored by using the squared ranges as the weighting factor. Specifically, the Monthly VWAP / RWAP and the Weekly VWAP / RWAP can be used to see whether we’re in a broad/intermediate uptrend, or whether we’re in a sideways market.

To learn more about the professional version of the Ichimoku Kinko Hyo, Opening Range and Session VWAP Package, visit our premium section now.