GBPJPY Trading Strategy: (Backtest, Rules And Performance)
There are many currency pairs available for trading. One of them is the GBPJPY pair. What is your GBPJPY trading strategy?
A GBPJPY trading strategy is an act of exchanging JPY for GBP or exchanging GBP for JPY. This is achieved by simultaneously going long USDJPY and GBPUSD or simultaneously shorting GBPUSD and USDJPY. This has been automated to get the GBPJPY currency pair.
In this post, we take a look at the GBPJPY currency pair, and we provide you with an example of trading statistics and metrics for a backtested and quantified GBPJPY trading strategy. If you are interested in this forex pair, you might also be interested in the GBPCHF strategy.
What is GBPJPY?
GBPJPY is simply the forex quote for the great British pound against the Japanese yen exchange rate. It compares the value of the pound to that of the Japanese yen. In this currency pair, the GBP is the base currency, while the JPY is the quote or counter currency.
GBPJPY is considered a minor pair because it is not a pair between a major currency and the USD. In forex trading, currency pairs of the major economies against USD are regarded as ‘major’, while a cross pair of major currency pairs are regarded as minor.
A cross pair is a net currency pair position formed by trading two currency pairs with one common currency (often the USD). GBPJPY is a cross pair of GBPUSD and USDJPY. A net long GBPJPY position (selling JPY to buy GBP) is achieved by going long on USDJPY and GBPUSD simultaneously — selling JPY to buy USD and using the USD to buy GBP. On the other hand, a net short GBPJPY position (selling GBP to buy JPY) is achieved by simultaneously shorting GBPUSD and USDJPY — selling GBP to buy USD and using the USD to buy JPY.
Among forex traders, the GBPJPY is known as “Geppy” or “The Beast,” and it is viewed as a reliable indicator of global economic health. The individual currencies (Japanese yen and British pounds) provide a strong reflection of economic health and policymaking in both the Asia-Pacific region as well as Western Europe.
Is GBPJPY good to trade?
Yes, GBPJPY is good for trading. While it is not one of the major pairs, we think it is good for trading for many reasons, such as the following:
- Adequate volatility: The topmost reason is its historical volatility; it has big price swings, which provide several trading opportunities for traders. In many cases, they can make significant profits in a relatively short time. The broad ranges for price action, as well as the swift price movements taking place within this currency pair, are among the reasons why the pair is called “The Beast.” Although its profit potential can be big, the risk can be huge too.
- Carry trade strategy: The combination of a high-yielding currency pair, like the GBP, with a relatively low-yield currency, like the JPY, can create a dissonance that can be used to execute a carry trade. Here, traders borrow funds from the low-yield JPY to purchase the higher-yield GBP and make money by leveraging the yield difference.
- Relative predictability: While the currency markets are well-known for misleading signals, the direction of the GBPJPY is often more predictable, which may make the currency pair a bit easier to trade than other forex pairs.
GBPJPY and USDJPY correlation
Correlation in forex trading, is a statistical measure of how closely two currency pairs move — the greater the correlation coefficient, the more closely aligned they are. A positive correlation means that the values of two variables move in the same direction, while a negative correlation means they move in opposite directions.
The price movements of GBPJPY and USDJPY can be significantly correlated sometimes. There are periods, the correlation coefficient gets up to or even more than +90% (+0.9). At such times, opening a position in both currency pairs may come with a lot of risks as it would almost be equivalent to carrying a double position in any one of the two pairs. Whatever affects one is 90% likely to affect the other. However, a high positive correlation does not happen very often.
Best time to trade GBPJPY?
Swing and position traders don’t often need to bother about the best time to trade GBPJPY because they hold their positions for many days and weeks/months. However, day traders and scalpers may want to consider the best period for trading this pair.
For intraday trading, the best time to trade GBPJPY is during the Asian session and the London session. During the Asian session, 23:00 to 06: 00 GMT, the Japanese market is open, which drives trading in the currency pair.
Similarly, during the London session, 08:00 to 16:00 GMT, the London market is open and drives trading in the currency pair.
How likely are you to succeed in trading GBPJPY?
We regard forex and currencies as the hardest to trade. Your chances of succeeding as a forex trader are pretty low, in our opinion.
Why?
Forex is hard to trade mainly because of two main reasons: first, it’s a zero-sum market. Unlike stocks, where you have a tailwind from the overnight trading edge, you don’t have any edge in the first place. Second, forex rates are extremely difficult to predict due to the zillion reasons that make the forex rates move. Additionally, you face scam risk (lots of unregulated brokers).
These risks, of course, apply to the GBPJPY currency pair. We have written a separate article where we list the 12 reasons why you should avoid forex trading.
Please also read our other articles about the probabilities of making it as a trader:
- What percent of day traders make money?
- Failed traders do this (inverse thinking)
- What percentage of traders lose money
What is essential is that you need to treat your forex trading as a job – a profession. You are competing against players that are both more knowledgeable and better capitalized than you are!
GBPJPY trading strategy backtest – does it work?
Even though forex trading is extremely difficult, they do have one advantage: if you find something that works, it most likely offers good diversification from your other trading strategies.
We do trade forex strategies, but we stick to forex futures. Below is one GBPJPY futures strategy that we trade in another pair (CADUSD), but it turns out it works almost as well for GBPJPY (the backtest is done in Tradestation – not the usual Amibroker backtest):
The strategy uses a rather odd time frame, but the trading statistics and performance metrics are pretty good:
We show the trading statistics and equity curve to prove that it is possible to trade forex, albeit we use futures. The strategy is several years old and has thus far held up well. We prefer not to reveal the strategy, though, as this is not particularly liquid futures contracts.
List of trading strategies
Since we started the blog in 2012 we have written over 800 articles. Plenty of those articles contain specific trading strategies that have trading rules and performance metrics.
We have compiled many of those into a package of code that you can order. We have thus far over 160 different strategies in our compilation. The strategies are taken from our list of best trading strategies. The strategies are an excellent resource to help you get some trading ideas.
The strategies also come with logic in plain English (plain English is for Python traders).
For a list of the strategies we have made please click on the green banner:
These strategies must not be misunderstood for the premium strategies that we charge a fee for:
FAQ GBPJPY trading
We end the article with a quick FAQ:
Q. How do you trade GBPJPY?
A. We believe there is only one holy grail in trading: backtesting and trading many strategies. So, the first aim is to use backtesting to find a positive expectancy, and the second is to find out how it correlates to your other trading strategies.
Q. What time can you trade the GBPJPY?
A. See the answer above. You need to backtest. There is no “best” or “worst”. If it works, it works. A backtest gives you a pretty strong indication of the profitability.
Q. Is GBPJPY a good pair to trade?
A. If you have a positive edge/expectancy and it adds diversification to your other strategies – then yes!
Q. Is GBPJPY good for beginners?
A. If you have read thus far in the article you probably know by now that we believe forex is not the right place to start trading. We believe the easiest market to succeed in, is the stock market.
Q. What factors affect GBPJPY?
A. We don’t know. It varies from period to period, but we can safely be sure that the number of factors is almost unlimited.
Q. Why is GBPJPY called the “beast”?
A. We believe it’s called the best because it presumably has been one of the most volatile forex pairs. We have verified if that is correct or not. Other calls it “dragon” as well.
Q. How many pips does GBP/JPY move daily?
A. A quick backtest shows that the average pips so far in 2022 have been around 175.
Q. What is GBPJPY and How is it Formed?
GBPJPY is the forex quote for the exchange rate between the British Pound (GBP) and the Japanese Yen (JPY). It is considered a minor pair and is formed as a cross pair of GBPUSD and USDJPY, providing traders with opportunities to go long or short based on market conditions.
Q. What is the Correlation Between GBPJPY and USDJPY?
The price movements of GBPJPY and USDJPY can be significantly correlated at times, measured by a correlation coefficient. A positive correlation indicates movements in the same direction, while a negative correlation implies opposite movements. Traders should be cautious during periods of high correlation.
Q. Does a GBPJPY Trading Strategy Backtest Work?
While forex trading is challenging, successful strategies can offer good diversification. Backtesting is a crucial step to finding a positive expectancy. An example of a GBPJPY futures strategy is provided, showcasing trading statistics and performance metrics.