How to Trade Using ICT London Open Strategy

The London Open presents a specific trading environment. Volume increases. Volatility often rises. This period, from 2:00 AM to 5:00 AM EST, offers opportunities for specific setups. This article outlines a strategy for navigating the London Open using an Inner Circle Trader (ICT) framework.

Prerequisites

Successful application of this strategy requires specific tools and understanding.

Market Structure: Identify higher highs, higher lows, lower highs, and lower lows. Understand shifts in market structure. A break of a swing high in a downtrend signals a potential bullish shift. A break of a swing low in an uptrend signals a potential bearish shift.

Fair Value Gaps (FVG): A Fair Value Gap is a three-candle pattern. The first candle's high does not overlap with the third candle's low in a bullish FVG. The first candle's low does not overlap with the third candle's high in a bearish FVG. These gaps represent inefficiencies. Price often returns to fill these gaps.

Liquidity Pools: Identify areas where stop-loss orders accumulate. These include swing highs and swing lows. Price often targets these areas. Equal highs and equal lows are significant liquidity targets.

Time Zones: Use Eastern Standard Time (EST) for all analysis. The London Open is 2:00 AM to 5:00 AM EST. The New York Kill Zone for London is 2:00 AM to 5:00 AM EST.

Economic Calendar: Be aware of high-impact news events. News releases can invalidate setups. Avoid trading directly into or during major news.

Trading Platform: Use a charting platform that displays precise candle times and allows for drawing tools. MetaTrader 4/5 or TradingView are suitable.

Risk Management: Define your risk per trade. A common approach is risking 0.5% to 1% of your account per trade.

Step-by-Step Guide

This strategy focuses on identifying a market structure shift and a Fair Value Gap during the London Open. We will use the EUR/USD pair as an example, but the principles apply to other liquid pairs.

Step 1: Identify Daily Bias

Before the London Open, determine the daily bias. Use the daily and 4-hour charts.

• Bullish Bias: Price is making higher highs and higher lows. Price is trading above a key daily or 4-hour support level.
• Bearish Bias: Price is making lower highs and lower lows. Price is trading below a key daily or 4-hour resistance level.

For example, if EUR/USD is consistently closing above its 20-period moving average on the 4-hour chart, and the daily chart shows a clear uptrend, your daily bias is bullish. This means you favor long setups.

Step 2: Mark the London Open Kill Zone

On your 15-minute chart, mark the period from 2:00 AM EST to 5:00 AM EST. This is your primary trading window.

Step 3: Wait for Liquidity Sweep or Inducement

The market often sweeps liquidity before a directional move.

• Bullish Scenario: Price drops below a short-term swing low (sweeps sell-side liquidity) before reversing. This creates an "inducement" for sellers.
• Bearish Scenario: Price rises above a short-term swing high (sweeps buy-side liquidity) before reversing. This creates an "inducement" for buyers.

Example: At 2:15 AM EST, EUR/USD drops to 1.0850, taking out the low from 1:45 AM EST at 1.0855. This is a liquidity sweep.

Step 4: Identify a Market Structure Shift (MSS)

After the liquidity sweep, look for a market structure shift on the 5-minute or 1-minute chart.

• Bullish MSS: Price breaks above a recent swing high after sweeping a swing low.
• Bearish MSS: Price breaks below a recent swing low after sweeping a swing high.

Example (continuation): After sweeping 1.0855, EUR/USD then rallies and breaks above the 2:00 AM EST swing high of 1.0865 at 2:30 AM EST. This is a bullish market structure shift. The low at 1.0850 is now a confirmed swing low.

Step 5: Locate a Fair Value Gap (FVG)

After the MSS, identify a Fair Value Gap in the direction of the new market structure. This FVG should be within the range of the MSS candle or immediately following it.

• Bullish FVG: A gap where the first candle's high does not overlap with the third candle's low, occurring after a bullish MSS. Price often retests this FVG.
• Bearish FVG: A gap where the first candle's low does not overlap with the third candle's high, occurring after a bearish MSS. Price often retests this FVG.

Example (continuation): Following the break of 1.0865, a 5-minute candle closes at 2:35 AM EST. The candle from 2:30 AM EST to 2:35 AM EST creates a bullish FVG between 1.0860 and 1.0863. This FVG is within the impulse leg that caused the MSS.

Step 6: Entry, Stop Loss, and Take Profit

• Entry: Enter a trade when price retests the Fair Value Gap. For a bullish FVG, enter a buy order at the top of the FVG. For a bearish FVG, enter a sell order at the bottom of the FVG.
  • Example: Place a buy limit order at 1.0863 (top of the FVG).
• Stop Loss: Place your stop loss below the swing low that caused the MSS (for a long trade) or above the swing high that caused the MSS (for a short trade).
  • Example: Place stop loss at 1.0848, just below the 1.0850 swing low.
• Take Profit: Target liquidity pools or a 1:2 or 1:3 risk-to-reward ratio. Common targets include previous swing highs/lows or equal highs/lows.
  • Example: Target the previous day's high at 1.0890, or a 1:2 risk-to-reward. (Risk: 1.0863 - 1.0848 = 15 pips. Reward: 15 pips * 2 = 30 pips. Target: 1.0863 + 30 pips = 1.0893).*

Full Example Walkthrough (Bullish Scenario):

1. Daily Bias: EUR/USD is in an uptrend on the daily and 4-hour charts. Bullish bias.
2. London Open Kill Zone: 2:00 AM - 5:00 AM EST.
3. Liquidity Sweep: At 2:15 AM EST, EUR/USD drops to 1.0850, sweeping the 1:45 AM EST low of 1.0855 on the 5-minute chart.
4. Market Structure Shift: At 2:30 AM EST, EUR/USD rallies and breaks above the 2:00 AM EST swing high of 1.0865. This confirms a bullish MSS.
5. Fair Value Gap: A bullish FVG forms between 1.0860 and 1.0863 on the 5-minute chart, immediately after the MSS.
6. Entry: At 2:40 AM EST, price retraces into the FVG. Enter a buy order at 1.0863.
7. Stop Loss: Place stop loss at 1.0848 (2 pips below the 1.0850 swing low).
8. Take Profit: Target 1.0893 for a 1:2 risk-to-reward. Price reaches 1.0893 at 3:30 AM EST.

Common Mistakes

Ignoring Daily Bias: Trading against the higher timeframe trend significantly reduces success rates. Always align your London Open trade with the daily or 4-hour bias.

Trading Without a Liquidity Sweep: The liquidity sweep often precedes the true directional move. Entering before this event can lead to premature entries and stop-outs. Wait for the market to show its hand.

Entering on Any FVG: Not all Fair Value Gaps are valid entry points. The FVG must occur after a clear market structure shift, ideally within the impulse leg that caused the shift.

Poor Risk Management: Over-leveraging or not defining a clear stop loss can quickly deplete an account. Adhere to your defined risk per trade, typically 0.5% to 1%.

Chasing Price: Entering a trade after the FVG has been fully filled and price has moved significantly. Wait for the retest. If price does not retest, the opportunity is missed. Do not force trades.