GBP/USD Trading Key Considerations Every Trader Should Be Aware Of
The GBP/USD currency pair is known as "Cable" and is one of the most liquidly traded pairs in forex, accounting for approximately 11% of forex trading volume. This major currency pair has tremendous liquidity and volatility providing several opportunities for experienced and inexperienced traders alike.
Trading GBP/USD comes with some unique advantages, mainly due to the extreme volatility you can have trading during the London and New York sessions having many opportunities to enter and exit from positions during the same trading day. Overall, the GBP/USD currency pair is impacted by a multitude of economic data, political climates and market sentiments from two of the largest economies in the world.
GBP/USD Currency Pair Fundamentals
The GBP/USD currency pair represents the exchange rate between the British Pound Sterling with the U.S. Dollar and informs traders of how many U.S. dollars a trader can purchase for an actual British pound. GBP/USD currency pair shows extreme volatility often moving 100 - 200 pips in a single day which is great for day trading or swing trading.
Both currencies of GBP/USD are held up by economic fundamentals. The UK economy revolves around London, a strong financial services province, which provides an opportunity in the pound. Furthermore, the US dollar is the number one reserve currency, allowing it to have considerable strength when traded against all major countries, including GBP.
When market activity is highest is in the overlap of the London and New York sessions (8AM - 12PM EST), which is the time frame when UK and US traders are in the market. GBP/USD typically demonstrates the highest amount of volatility and trading volume during these hours, which is ideal for orderly trading or scalping.
Analyzing the History and Long-Term Patterns
Looking at GBP/USD historical data gives clear patterns to make your trade decisions. In the last two decades, the range of momentum and emotion cycles has spiked around major economic announcements events.
The 2016 Brexit referendum was one of the most turbulent occasions in GBP/USD history too, causing the pair to go from 1.50 down to below 1.20 in just a few months. What Brexit demonstrated was that political uncertainty can create long-term directional moves that present traders with significant opportunities to trade the trend if they recognize the move early on.
Factors Driving the Economy
Quite a number of fundamental factors, which drive GBP/USD price movements and create volatility, with other significant contributions being releases of economic data . For example, UK GDP growth, UK inflation data (CPI) and employment data have a much more salient impact on the strength of the pound relative to the dollar, than positive developments in other UK economic news.
News Trading and Volatility Management
Economic news releases often create great trading opportunities for GBP/USD pairs, with UK data and US data having different effects depending on market expectations. High impact releases include BoE interest rate decisions, UK employment data, US Non-Farm Payrolls, and Federal Reserve news releases and decisions.
Successful news trading is about identifying whether the market is pricing in expectations versus actual results. Sometimes the economic data is so far from consensus expectations, GBP/USD will make sharp moves, often directional, for a trader to take advantage of with pre-trade setup.
Start Your GBP/USD Trading Journey
Are you ready to put this information into practice? If you want to apply these ideas without risk, can I suggest you get a demo trading account and deploy everything you have learnt? Practice first and have no capital in the first instance, and develop your processes in a stable environment, so that you can feel well-intentional for disciplined execution and implementation.
Always be mindful that successful trading on the GBP/USD requires knowledge, skill, and patience. Start small, always maintain a trading record, and focus on your trading world given the market feedback and your own self-performance. Check out tradewill.com for more info.
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