GBPJPY Trading Strategy (Backtest)

Last Updated on September 22, 2022 by Oddmund Groette

There are many currency pairs available for trading. One of them is the GBPJPY pair. What is your GBPJPY trading strategy?

GBPJPY trading is the 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.

At the end of the article, we provide a backtested GBPJPY trading strategy.

In this post, we take a look at the GBPJPY currency pair.

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:

  1. 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.
  2. Carry trading: 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.
  3. 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.

GBPJPY and USDJPY correlation
GBPJPY and USDJPY correlation

Source: Myfxbook

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.

GBPJPY trading strategy (backtest)

A GBPJPY trading strategy is coming shortly.

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