Why Trade GBP-USD Pair
As part of your GBP USD forex strategy
- The US and the UK have some of the oldest and largest economies worldwide.
- The two nations are secure, which is vital for traders.
- The pair has a lot of volatility and liquidity, making it easy for forex traders to enter and exit the market quickly.
- The economic indicators in the two countries make it easier to get and make trading decisions than other nations, such as the Republic of China.
- The tight bid-ask spreads make it ideal for day trading. Check out USD/GBP trading tips!
GBP USD Forex Strategy and Trading Tips
1. Understand the Two Economies
For traders to successfully trade in major currency pairs like the GBP/USD, they need to understand how the two economies work. This is one of the most important USD/GBP Trading Tips to take under consideration.
Without getting an economic report of the two countries, it will be challenging to make ideal trading decisions.
- How do the two financial markets work?
- How do the two nations relate to the other nations?
- What is the unemployment rate in the two countries?
- What are the recent geopolitical events in the countries?
- Which is the monetary policy in the countries?
These are essential points that both experienced, and novice traders need to focus on.
2. Influences on GBP/USD Price Movement
Several fundamental factors come into play when one is trading on this currency pair.
While some traders have weekly charts and price charts to determine their trading, here are the main factors that influence GBP/USD trading:
- Economic Growth
If the United Kingdom’s economy seems stronger than the United States, the pound rises against the dollar, and vice versa. Employment figures, increased investment and interest rates can increase the growth rate. Thus, traders lookout for economic calendars.
- Monetary Policy Committee Decisions
From the early days of this currency pair, market updates by the Federal Reserve and the central bank of England significantly impacted the rates.
- Political Events
It’s evident that political decisions, such as Brexit can trigger a change in the price level of GBP/USD. On the other hand, major elections can have a substantial effect, according to Investopedia.
- Currency Correlations
Understanding the change of currency correlation matrix on the GBP/USD real-time price chart is hard for most forex market participants. Since this might be a term that most traders have encountered in online blogs, here is a deep technical analysis:
Currencies are traded and priced in pairs, meaning no pair is independent of another. For instance, when trading the GBP/JPY, ideally, one is trading a derivative of the USD/JPY and GBP/USD pairs. Simply put, the GBP/JPY, to some extent, links to either or both currency pairs.
- Correlation Analysis to Day Trade the GBP/USD Pairing
It’s best to recognise correlation as a standard statistical measure of the relationship between a currency pairing. Correlation ranges from -1 to +1. The latter means they will move in the same direction, while the former indicates the currency pairing will move in different directions.
- The relationship is arbitrary when one gets a zero correlation. It’s worth noting that one can have a negative or positive correlation over a period of time due to various economic and political factors
3. GBP USD Forex Strategy
Regardless of a trader’s trading strategy, whether it depends on weekly analysis and pivots or five-year averages, the following points can help one when day trading GBP/USD:
A common fallacy exists amongst forex trading users, that because the market is open 24-hours a day, they should trade all day. All traders should avoid this misconception at all costs. Successful day traders will get potential profits if there is sufficient volatility and daily trading volume to create earnings higher than the commission or trade spreads.
Traders encounter massive and rapid movements in spreads during the relatively quiet periods and narrow ones during the busy time frames. From Sunday evening to Friday afternoon, the GBP price direction in the United States opts for a particular time frame.
Usually, the best trading day technique to use is when the two markets are open. Thus, the perfect time to day trade GBP/USD is between 0800 hours and 1000 hours GMT. Another perfect time is between 1200 hours and 1500 hours GMT. During this time, traders face the largest daily moves, and spreads have a low impact on the potential profits. Therefore, it’s wise to trade during the most active time to avoid a drastic directional movement, especially the downward movement.
- Trading News
Those against GBP/USD 15-minute, 1-hour charts or technical forecasts can trade based on the current news. So, the economic reports on the US manufacturing growth, unemployment rate, consumer market sentiment and spending are some of the major factors that trigger a change in the price range.
Yahoo Finance, Google Finance, Bloomberg and DailyFX, all offer up-to-date forex news. As long as one reacts before the other traders, there are high chances of having the edge over the competitors.
The good thing about the news mentioned above platforms is they offer all the forecasts, commentary and GBP/USD rates to evaluate the best trading position in the modern economies. Whether a trader’s trading strategy revolves around the breakout strategies or the Elliot wave analysis, having present and the next week’s forecasts puts one in a strong trading position.
- GBP USD Forex Breakouts Strategy
Traders should opt for a solid risk-reward ratio for GBP/USD day trade breakouts. For example, risk 25 pips and, at the same time, aim for 100 pips. Whatever technique a trader incorporates, the trader should go for an aggressive 1:4 reward/risk ratio.
In addition to this, currency traders should avoid risking a lot of capital for every trade. According to financial experts, traders should only risk roughly 1 -2% of their account balance in single market trade.
The central bank policy and long-term forecasts from financial institutions often give a good trading strategy. Most traders in the forex industry use long-term forecasts and predictions from the macroeconomic variables. Thus, major corporations and governments exchange currency based on price action expectations and movements.
- Four-Hour GBP/USD Strategy
Traders need to analyse both a four-hour and daily chart as the two affect trading results. The 4-hour timeframe determines the perfect time to enter trades, while the daily US or European session time frame evaluates the primary trend.
This Trading strategy comes with obvious benefits. First, in a strong trade, traders can make a good number of pips. Second, traders enter the trade in the early stages because they do so after an exponential moving average.
4. A Short History of GBP/USD Trading
- For one to successfully trade on the GBP/USD, it’s essential to understand their stormy relationship. Retail sales between the two currencies have been in existence for many years. Here are some of the historical exchange rates that traders need to know about these currency pairings.
- 1990s Intervention
An essential period in the GBP/USD history happened in the 1990s. The bank rate introduced by the Bank of England (BoE) led to the biggest moves and exchange rate ever recorded in the pair’s history. After a few months, the likes of George Soros realised the Bank of England was in a difficult position, and his response was to short the pound.
- 2007 Crisis
Another significant event of the GBP/USD happened in 2008-2009. In the summer of 2007, it was evident that the primary financial institutions in the US were in serious problems, as described at length in Investopedia. However, the GBP rose against the US dollar for most of 2007 because retail traders did not entirely understand the global effects.
- Brexit Impacts
A recent milestone happened in 2016 after the UK voted to leave the European Union. At this time, the GBP/USD exchange rates quickly shifted both in the US and European markets. The pound’s value dropped significantly against the US dollar.
As all traders can see from the above, understanding how various events impact USD traders on their GBP/USD will prove valuable. Simply put, regardless of where one is trading from and the desired trading session, having the context impacts daily ranges. It also makes the rate decision seem sensible.
5. A Word of Advice
As one of the widely traded currencies worldwide, GBP/USD currency pair is a target for most day traders. The narrow bid-ask spreads and an incredible option to trade on financial vehicles, including options and futures, will continue to entice aspiring investors.
However, for traders to be successful in the demanding forex market, they need to have an advantage over their rivals. Here is where utilising volumes, the USD/GBP Trading Tips and trading during a specific time comes in handy. Assessing the equity market, currency resistance levels, bank rate, money supply, and economic report data (both positive and negative user reports) helps investors spot promising financial prospects.
Trade GBP/USD Now
Start implementing the USD/GBP Trading Tips now!
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