Today we offer you to learn the so-called London Hammer Forex Strategy. It is based on the following: the enhanced activity of traders at the very beginning and at the end of the London trading session provokes a surge of volatility. This trading method is pretty easy to employ due to the fact that it doesn`t require any indicators. The only thing that needs to be done is to monitor the chart to spot the hammer candlestick near support/resistance levels, right after the narrow trading range.
Traders need to open buy/sell positions in the direction of the hammer. In order to control and minimize risks, Stop Loss is set a few points behind the tail of the hammer. Note that the advisable reward/loss ratio here is 2:1, and to collect profits one should shift Stop Losses once the trade is reversed.
Example of a London Hammer strategy:
This chart shows the Monday Asian trading session (grey) and the beginning of the London trading session (blue). The close of the position for the previous week and Monday morning started with a sharp gap lower, it is marked in the white circle on the left top of the Asian session. After the price stabilized after the initial sale, a sideways trend was formed during most of the session. The price action drifted higher to the level of the previous trading day and a potential double top was formed.
As the trading session started in London, a hammer pattern was formed (marked by the second white circle on the right), and the uptrend has bounced. The price action tried to trigger a breakthrough several times, but it was unsuccessful. The double top chart model was confirmed, and now Forex traders have enough signals to place short orders.
Do not forget to set Stop Loss just above the hammer tail and watch the price action. Take into account that at the beginning of a London trading session the volatility is often manifested by swings, as seen by several large candlesticks.
In situations like this, when the price moves like this, reversals often occur and we have pointed to one of them with a third white circle. After the sellout price attempted to create a support line that was just above the key monthly pivot, which is marked by a green dotted line. The price tried three times unsuccessfully to breakdown, and the reversal was formed. It was just the right time to swing trade, replacing open sell orders by buy ones.