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The late London lunch dip on EURUSD, trading the return to the morning range

around 11:00 to 12:00 GMT, EURUSD often drifts away from the morning range, usually a quiet push with small candles, and then comes back toward where the morning action happened. I've been tracking this for a while and it's become one of my calmer setups.

I mark the London morning high, low and midpoint on M5. If price is stretched beyond one side by late morning and the candles are small and overlapping, I look for a reversal back toward the midpoint. I need a rejection candle before entry, not just a stretch. Stop goes beyond the extreme, target is the midpoint first and the opposite side of the range if there's a clean push.

What I avoid is a day where London broke out hard in the morning and never came back. In that case the drift isn't a stretch, it's the continuation of a trend, and fading it is a mistake. I also skip it when there's US data coming soon, because the quiet drift often turns into positioning ahead of it.

It isn't a high frequency setup. A few times a week at most, and sometimes I just watch it.

A few people asked how I define stretched. I keep it simple: price has to be clearly outside the morning range, not just poking a pip past the high, and the candles have to be getting smaller as it drifts. If the bodies are still big and closing near their extremes, that is not a drift, that is buyers or sellers still pushing, and I leave it. The quiet overlapping candles are the whole tell for me. When I see them around half eleven I start paying attention and wait for the rejection candle before I even think about the order.

On the US data point, I check the calendar before London lunch every single day now. If there is anything from the States due at half twelve or half one, the lunch dip trade is off for me. I learned that the hard way when a nice reversal toward the midpoint turned into a spike right through my stop because the numbers came out early in the move. The setup depends on the market being sleepy, so anything that wakes it up kills the logic. No data, normal spread, small candles, then I look at it.

Something I added recently is a time stop. If I am in the trade and price has not started moving back toward the midpoint within about thirty minutes, I close it. The whole idea is that the lunch drift fades as the desks come back, so if nothing has happened by the time New York traders start showing up, my reason for being in is gone. It cuts a few trades that might have worked eventually, but it also stops me sitting in a dead position right into the US open, which is the worst place to be holding a fade.