Simple Strategies For GBP Traders

Last Updated July 23rd 2021
6 Min Read

Forex trading is one of the most popular trading markets in the world in terms of turnover, liquidity, and volatility. Both beginners and veteran investors find forex trading an attractive opportunity for a number of reasons. Traders can use tools to analyse markets and trade from home and only a small capital is needed to start trading. The daily global forex trading volume averages around $5 trillion. 

Some of the major currency pairs that bring in a lot of movement and volumes are EUR/USD, USD/JPY, USD/CHF and GBP/USD.

Whatever currency you deal in, it is important to understand them well before you take any big steps. Here are some strategies for those who wish to trade the British Pound (GBP).

GBP Trading

In the world of forex trading, the GBP or the British Pound Sterling is one of the busiest. 

United Kingdom’s reputation as ranking sixth among the largest global economies means that the national currency is one of the top currencies in the forex trading market today. In the global forex trade market, GBP/USD is considered as one of the most liquid and cash-rich pairs on the market. The GBP/USD exchange is called trading the cable by market players and these two are, historically, the oldest currency pairs.

After the Bretton Woods system that was prevalent in the post World War II world economy to ensure exchange rate stability got dismantled in 1971, nations adopted a floating exchange rate model. This makes the GBP a currency that forex traders should actively follow and master to be successful.

The high levels of volume, volatility and spread quotation are due to wider price ranges compared to other currency pairs.

Have you considered trading the GBP/USD pair?

The Different Strategies For GBP Traders

So what are the top strategies for the GBP traders? Let’s analyse some of the simple yet effective strategies that are the best practices in forex trading for the GBP/USD currency pair.

If you have a forex trade account, irrespective of whether you are a new or an experienced GBP trader, use these three simple strategies to gain from the trading volumes and volatility. 

1. The GBP/USD Carry Trade Strategy

Carry trading is one of the most popular trading strategies followed in the forex market and this strategy works well with the GBP/USD pair. Carry trading happens when you buy a high-interest currency against a low-interest currency to make a profit from the difference in interest rates. And in addition to your trading gains, you can also make profits from their interest differences.

Carry trading must be conducted with caution; the GBP/USD currency pair is very volatile, so without proper risk management, you could have a substantial potential for loss.

2. The GBP/USD Midnight Trading Strategy

The second strategy that works for the GBP/USD pair is the midnight trading strategy. As the name suggests, this trading takes place at midnight and you enter the market at 00:00 hours as per the time set on your trading account platform. The midnight trading pattern needs to be based on the size of the candlestick of the new trading day and the size of the previous candlestick. 

When you compare these two candlesticks on the GBP/USD chart past midnight, and if the height of the previous candlestick is smaller than 90 points (including the shadow) avoid opening a trade. 

If it is larger than 90 points, you could set a buy stop-order 5 points at the top of the previous day candle and a stop-loss 3 points under the daily low.

Another approach is to place a pending sell stop-order 5 points under the low of the candlestick and a stop-loss 3 points above the daily high.

The exit strategy is to stay in the trade for the whole day and keep the trading position open until you get +100 pips and then exit.

If you are game to dedicating your midnight hour to forex trading, this strategy could work for you.

3. The GBP/USD Breakout Trading Strategy

The third trading strategy that can be applied with the GBP/USD pair is the breakout trading strategy. It is normal for currency pairs to oscillate within a relatively tight range for extended periods. As a trader, if you are well aware of the well-defined trading ranges, you could take advantage of the moves above a resistance level or the moves below a support level on increasing volume.

In this strategy, you enter a trade when the price moves from a period of low volatility to a period of high volatility. To make this strategy work, you need to be both quick and aggressive and trade in higher volumes.

You also need to stick with your plan and know when to get in and get out. This is where the tried and tested risk management technique like stop-loss becomes handy. 

Best Time To Trade The GBP/USD Pair

The volumes in GBP/USD trade have been consistently large with the spreads quite tight due to the two-way movement. This also means that the support and resistance levels have to be followed more keenly when calculating the best time to trade GBP/USD. 

The ideal time to do GBP/USD transactions is when both London and New York exchanges are open, i.e., between 06:00 and 16:00 GMT. To maximise your profit, day trade the currency pair between 08:00 and 10:00 and 12:00 and 15:00 GMT; this is normally when the biggest moves happen.

You also need to keep an eye on the latest financial and economic data releases in both the UK and the US; these could have impacts on the GBP/USD pair.

Read Also: Best Time To Trade Forex In The UK

Open A Demo Forex Trading Account

If you are new to forex trading, opening a demo forex trading account is an ideal way to get started with trading in the global currency market. Forex trading platforms come with a range of powerful tools such as real-time market insights, charts, useful data, market indicators and other resources to meet your unique trading needs.

Enhance your forex trading performance by first practising on your demo account. Later, you can open a live account with an investment of as low as $100 and start trading.

Using the strategies covered in this article will help you as a GBP trader to make informed decisions and carry home great returns without many risks.

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