Pound Sterling is one of the currencies known by the world community. British Pound, with the code GBP is one of currencies that are classified as liquid and is often traded by the world community, both physically and in the world of forex trading. The GBP / USD currency pair is often nicknamed “cable” in reference to an ancient term where the first transaction between UK and USA online is referred to as this term.
Pound Sterling Symbol
In the world of forex trading, GBP is one of the compilers in the US Dollar Index (DXY, USDX) which is weight as the second largest number after the Euro. With a weight of around 10%, GBP is classified as able to change the value of the US Dollar Index, although not as strong as the Euro.
What are some of the catalysts driving GBP?
1. Internal Factors
Internal factors include data and economic development from the UK (there are differences between England, the UK and Great Britain). A number of types of data must be considered, but it should focus on GDP, inflation, unemployment and interest rates in this country. This internal factor is also a reference for BoE, the Bank of England to conduct monetary actions, such as raising, lowering or maintaining interest rates.
2. External Factors
External factors for this currency pair are economic factors outside the UK. For now, the most dominant is around the Brexit issue which is still the main topic. The European situation is also closely related to this currency because the European Union is the largest trading partner of the UK. While from the USA also influences this currency pair, besides of course global factors.
Trading GBP / USD
Trading on this currency pair is arguably easy and difficult at same time, because of the volatility and fairly wide daily range. That way, the trader is expected to be more careful in trading, especially in determining the amount of lots and stop loss points and profit targets. This currency pair used to move in the range of up to 200-300 pips from its highest point to its lowest point.
For technical factors, GBP / USD should be analyzed with a time frame that is greater than H1 / 1 hour, because of the wide daily movement range factor. Large time frames also reduce the impact of noise that might occur in smaller time frames. Traders can use indicator approaches such as a mixture of Stochastic and MA for trading, or with candlestick patterns.
UK’s Data Releases
What needs to be considered in GBP / USD trading?
- Not all news from the UK must be considered for forex trading in this currency pair. Usually, important releases such as GDP, interest rates or inflation have more weight on the movement of this currency pair. Be sure to pay attention to releases of economic data like this.
- As already stated, the UK central bank aka the BoE has the authority to regulate interest rates. Check the date the BoE has a meeting and announce their policies, to avoid the wild movements of GBP / USD.
- The Brexit factor also has a large influence on this currency pair. Always willing with news about Brexit.
- Most brokers provide a fairly small spread on this currency, which can be a profit and loss. Profits, because profits can be obtained faster not to wait for prices to move beyond the spread value. Losses, due to the ease of price changes, there can be an intention to overtrade by opening lots of new orders. Be aware of this.
- Because the pair has USD in it, news from the United States also needs to be considered in making decisions before trading is executed.
- On several occasions, even news that is not from the UK or the United States can sometimes move this currency pair. Risk On and Risk Off factors (sentiment of market participants whether they feel optimistic or pessimistic) can also be a driver of this currency pair.
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It should be underlined that the trading system on this currency pair does not provide certainty of always profitable and successful. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of Stop Loss. Keep in mind that if you use indicators, indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet regarding SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis properly and the mind that is focused on achieving consistent profitable forex trading techniques.