forex-scalping.com

London Close Reversals, The Overlooked Setup

Most traders focus on the opens of London and New York. The London close, when European traders finish their day, can also produce meaningful moves, and many people overlook it. What often happens: after a strong morning move in the New York session, price can retrace as London traders take profits and close positions. This sometimes creates a reversal or retracement in the afternoon.

How to approach it:

1. Identify the day's main direction by late morning in New York.
2. Mark the day's high and low so far.
3. Note whether price has moved a large distance, suggesting it may be extended.
4. Watch the hour around the London close for signs of exhaustion, such as rejection wicks or a structure shift on the 15M chart.
5. If confirmation appears, consider a modest counter-trend trade with a tight stop and a target at a nearby level, such as a fair value gap or the day's midpoint.

Important cautions:

- Counter-trend trades are riskier and need smaller size
- Strong trend days may show no reversal at all
- Liquidity can be thin, and spreads may widen

Many traders use the London close as a signal to stop trading rather than to find a new setup, and that's equally valid.

Study the hour for twenty days before risking money on it. Understand whether it fits your pair and style.

A lot of what gets called the London close reversal is really the 4 pm London fix. The WM/Reuters benchmark is set over a short window around 16:00 London, which is 17:00 in Central Europe, and big orders for funds are executed into it. Price often gets pushed in one direction into the fix and then relaxes once the flow is done. If you watch the hour around 4 pm without knowing that, the reversal looks like exhaustion when it's mostly an order book clearing.

That matters for timing. I don't look for the counter-trend entry before the fix window is over, because the push into it can extend well past what looks "extended" on a 15M chart. Month-end fixes are the exaggerated version, with rebalancing flows that can be large and one-sided, so the last trading day of the month gets either extra caution or no trade at all.

Agree with your last caution. For most scalpers the close is the end of the day, and the 20-day study you suggest is the right way to find out if it's anything more.

Fairman wrote: Watch the hour around the London close for signs of exhaustion, such as rejection wicks or a structure shift on the 15M chart.

The London close overlaps with the 4 p.m. London fix, which is worth adding to your list. The WM/Reuters fix is calculated around that time and large orders from funds and corporates are executed into it. On month ends and quarter ends especially, the flows can push price sharply in the minutes before 4 p.m., then reverse once the fix is done.

So part of what looks like a London close reversal is fix-related. Knowing that helps with timing: I'd want to see the reversal start after 4:00, not try to anticipate it during the fix window.

Your caution about thin liquidity is right too. After the fix and the European close, spreads on the crosses widen noticeably, and the afternoon New York session can drift without much direction.