At the time of writing, the British Pound has been one of the more active and trending of all the major currencies over recent weeks. In any case, it is a perennial favorite of retail traders, and it is mostly traded against the USD as GBP/USD (“cableâ€), but also against the JPY as GBP/JPY (“geppy†or “the beastâ€) and of course against the EUR as EUR/GBP.
The GBP can be a great currency to trade for profit as in many ways it is the most predictable of all the major currencies. However these areas of predictability are often misunderstood and traders can find themselves being stopped out for losses thanks to unexpected spikes, swinging volatility, and generally slippery price action. In this article I am going to highlight a few points that should help you avoid some of losses if you digest them and keep them in mind.
Time of Day
This might not be shocking news, but the price movement in the British Pound is heavily dominated by the time of day, i.e. what happens between 8am and 5pm London time. London is one of the major global trading centers anyway, although over recent years the New York session has become more influential in shifting price direction. However when it comes to the British Pound, the London session is so influential that there is little point in opening trades outside the London session. You can also expect the crucial high (in a down day) or low (in an up day) to be made during the London session.
A few weeks ago I analyzed a trading strategy that sought to trade the GBP/USD by just watching where the price is at 9am London time. If it is up by more than 0.15% but less than 0.30% since Midnight, look for long trades, and vice versa for shorts. With the exception of really wild and crazy market environments, the strategy has worked quite well. So it can be said that there is a statistical directional bias that is set by the first hour of the London session, from 8am to 9am London time.
