Tuesday, March 20, 2007

Trading GBP/JPY

Such a great moving pair. If nothing is moving, GBP/JPY is.

But be careful what you ask for, unless you know what you trade, when you trade GBP/JPY.

Actuall I would recommend you shouldn't trade GBP/JPY unless you have followed it for at least a month on the charts in realtime. It’s a great mover, no doubt, but you need to know the mechanics behind this pair or you will get crushed.

GBP/JPY is called a cross currency pair for a reason. The major pairs behind it are GBP/USD and USD/JPY. And if you are a big player and want to go long GBP/JPY in real size you usually trade it through the majors.

Meaning you go Long GBP/USD and you go Long USD/JPY

Now let’s say you do that at

Long GBP/USD at 1.9450

And

Long USD/JPY at 117.50

For a Long GBP/JPY at 1.9450*117.50 = 228.54

We all know GBP/USD is quite volatile so let’s say it goes up 15 ticks to 1.9465, USD/JPY is still at 117.50

GBP/USD went our way, so GBP/JPY should be up as well. Let’s do the math:

1.9465*117.50 = 228.71 or a 17 tick profit.

Not a lot but better than the 15 ticks the GBP/USD made.

Let’s say, you took the trade, because you saw resistance in GBP/JPY at 228.50 breaking on a short term chart. Unfortunately neither of the majors broke their resistance, they stopped at the round number 1.9450 and 117.50 respectively and reversed 20 ticks in the blink of an eye.

It happens as we all know and to tell the truth, 20 ticks on GBP/USD is nothing uncommon for a wiggle and a retest of the round number. I myself held a few -20 on GBP/USD without the urge to stop it out right away, as I know it will make it back in a few ticks, the moment volume comes in.

So positions in both majors are down -20

But for our GBP/JPY that means 1.9430*117.30 = 227.91 or down 63 ticks

I don’t know how you see it, but having 2 positions down 20 is nothing I like, but depending on the timeframe I trade it might be acceptable.

One position down 63 ticks, well that’s something different altogether. Still if you look at the majors, it might be that your trade setup is still valid and in the next 5 minutes GBP/JPY will reverse all the 63 ticks back up for a test of the round number and continue upwards.

The spike on that 15min chart above did not reach 227.91 today, the spike was down to 228.15 only, still if you were long it was sure nasty. But in the majors, it was just a wiggle prior to another leg up.

Globetrader_95.png

So make sure you know what you trade when you trade GBP/JPY. And always have the GBP/USD and USD/JPY charts side by side with GBP/JPY.

7 comments:

Caravaggio said...

I looked at GBP/JPY for a while, but then I ran away, with my tail between my legs!

Anonymous said...

I've added you to: http://www.forexforeigncurrencyexchange.com/

MidKnight said...

Hi Croc,

You are talking about FOREX here and you use the words "the moment volume comes in". The truth with forex though is you have no idea what the volume is and thus have no idea when volume is coming into the market, or if indeed ANY volume is coming into the market. The price is just a moving a bid, no volume has to occur for that to happen.

Best regards,
MK

event trading said...

GJ: the 800 pound gorilla. No finer trading instrument in existence. Correlates well with stock markets, i.e, Nikkei, FTSE, DJIA. Milk those waves for fun & profit.

GreatMystery said...

Thx for the post. It was helpful for this newb trying to learn more about the GBP/JPY.

nice volume/price feature. what platform do you use?

Anonymous said...

I looked at GBP/JPY for a while and didnt think it was worth it. Till one day when the news around was that USD/jpy is bullish and GBP/USD is bullish as well.. So i decided to buy GBP/JPY and made huge profit.. So bottom line.. If you wana trade two currencies together and both are in similar directions then chose this pair.. Dont look at GBP/JPY charts and try to make sence of it.

Vishal Ved said...

I am very impressed with the insight given by globetrader. Today I came to know that we can trade combination of two currency pairs to trade one currency. I want to trade big in the forex market especially GBP/JPY (atlease 500-1000 contracts). Can any one tell me where to find the daily volume for currency pairs