Understanding Forex Trading - - Most Popular "Big Ben" Strategy For Canadian Dollar

One of the more popular, or better known, trading strategies in Forex circles is "Big Ben" method. This strategy is named after the famed London landmark for two reasons- it is specifically targeting British Pound, in the GBP-USD pair, and is designed to be used after London opens for business. It is a day trading technique and entirely technical, disregarding any fundamental input. Cornerstone of the strategy is in a fact that trading volume in GBP-USD expends dramatically after London opening, typically causing relatively large move, by comparison to preceding swings.

Many variants of the Big Ben strategy have been developed, but the core is something like this: initial moves when after Frankfurt opens (an hour before London) establishes daily opening range for GBP-USD. Within next hour, as the volume grows, real first move of the day starts, going through high/low of the Frankfurt swing. Purists of the method would look for a move in opposite direction, reversal, using mostly 5M charts. Stops are typically tight and relative to the returns sought. For example, some variations of the technique suggest targeting 20 pips, while others would make it dependent on the total range of previous hourly range. Many combinations are possible, but once chosen, specific one should be traded for some time (50,100, more?) trades in a disciplined, systematic manner.

It is not my intention to dive into specific of GBP-USD Big Ben strategy- subject has been analysed to death, and beyond, in countless articles over the years. What is often overlooked, however, is the fact that many other currency pairs also experience increase in activity at that time. Euro, Swiss Franc and their respective crosses tend to behave in a similar to GBP-USD, by staging large moves after London opens. There is nothing shocking about. Bulk of trading in most currencies is done during domestic business hours. Interestingly, though, other, less obvious currency pairs also start moving during this time. One of them is USD-CAD.

The above hourly chart shows USD-CAD during period from 10.07 to 10.23 this year. It was chosen at random, I simply scrolled back the chart and took snapshot. Red arrows indicate candle for the hour before London open. Almost everyday there is an increase in activity in the following hour, in most cases it is a reversal, candle of opposite color. Few hours later there is another spur of activity, when North America opens for business.

All said, vast majority of entire daily ranges happen during the 8 hours after trading starts in London.

That's how I'm trying to take advantage of this almost daily occurrence, by counting on the move that lasts for this period of time. It is longer than typical Big Ben set up, but the principles are the same. Simple breakout orders, with fixed 40 pips stops, but no target values. Trades, if not stopped out, are always close at 11:00 EST, regardless of loss or profit at the time. In fact, the whole process is automated, and is repeated daily without my interference. During the time span of the chart above strategy produced about 370 pips gain. That includes 4 loosing trades and 3 days during which no trades happened.

In 2009 to date trading this method produced about 3000 pips profit. It is above average result, preceding 3 years delivered far less- 2006 about 800 pips, 2007 just under 1000 pips and 2008 a little over 900 pips. I'd say USD-CAD has had bigger, more directional moves, during time of interest this year, hence far bigger returns. From my perspective it is not all that critical how much pips this pair makes- many more pairs are involved(12) as a part of far larger approach. Better year in one is often offset by sub-par performance in another cross.

What I'm using for exact entry points is a mathematical formula, which won't be disclosed here. That would require getting into subject way out of scope of this post. Sell/buy points can be determined by far simpler means, like using principles from the Big Ben strategy. I would suggest experimenting with stop levels- fixed number of pips, previous highs/lows. Same for objectives. While I use time based targets, fixed number of pips do work better at times and so could FIB projection/retracement levels. Anybody interested in this concept should do some experimenting with parameters, by backtesting few different versions. Frankly, doing this kind of work is the only way to develop any confidence in, and understanding of, trading strategy. Part of trader's development.

Big Ben strategy is applicable to much more than just GBP-USD. London opening is pivotal time during Forex trading day, influencing almost all active currency pairs, even USD-CAD. Anybody who trades Canadian Dollar with some frequency should get familiar with its behavior in early European action. CAD is considered difficult to trade, so any edge is welcome. Principles of Big Ben method, while simple, are also flexible. One can easily create a unique, robust system using it as framework.