Trading the Overlap

The ‘overlap’ is when the London and US sessions literally overlap each other. These are the two largest market centers in the world, and during this 3 hour period of time – banks on both sides of the Atlantic are furnishing prices. The onslaught of liquidity being offered from these market centers can entail large and fast moves.

As this additional liquidity comes into the market, it can increase volatility.

Findings confirm the fact that this additional liquidity can increase volatility. In the chart below, notice that the average hourly moves are highest during the highlighted period between 8-11 AM ET.

 ‘Traders can look to use this volatility to their advantage by trading breakouts. When trading breakouts, traders are looking for volatile moves that may continue for an extended period of time. This way, when they are wrong, they can cut their losses short. When they are right, they can maximize their gains.’

The primary aspect of trading a breakout is an aggressive risk-to-reward ratio in which the trader risks a smaller portion than they are looking to gain if they are right. Risk management is often the most important part of a breakout strategy.

Once a trader has properly addressed risk management, the entry into the trade can be staged with any relevant mechanism of support and/or resistance.