GBPUSD is a great pair to trade only if you know how to handle it. It moves up and down hundreds of pips matters of minutes. Do you know GBPUSD fell 1400 pips in just 1 minute in October? This flash crash is still being investigated and the jury is out. A rogue algorithm is being blamed for causing this flash crash. Read this post on how to trade US Dollar. If you can keep the risk low, you can profit from the big moves GBPUSD makes. Take a look at the following GBPUSD H4 chart screenshot.
In the above screenshot you can see a recent GBPUSD buy trade with a stop loss of 10 pips and take profit target of 250 pips. This gives Reward/Risk of 25:1 which is excellent. Reward/Risk is also known as R/R. R/R of 25:1 means if you risk $1000, you can make $25K from this one single trade. This is precisely what happened. Just look at the above screenshot just above the red arrow. First there is an inside bar. Download this Inside Bar Trading Robot FREE. We place a pending order with 10 pip stop loss. Price goes down and the order is filled. Then it takes roughly 3 days for the profit target to get hit.
In the above screenshot, can you see any indicator? There is no indicator. Why? We are naked traders. Naked trading means trading solely based on price action. We use H4 timeframe for making the entry and exit decisions. Of course we also look at the weekly and the daily timeframes. This gives us the general idea in which direction we should open the trade and where to place the stop loss and the profit target. Once we have analyzed the daily and the weekly chart, we switch to H4 and then place a pending order.
Always use pending orders. Never use market orders. Pending orders will give you entries at a much better price as compared to market orders. This will help reduce the risk. Our trading has evolved over the years. Now we only focus on risk management. Our stop loss is always between 10-20 pips. Take profit target is always 100-400 pips. It depends on the market analysis. Most of the time the take profit target is 150 pips. On pairs like GBPUSD, it is easy to achieve a take profit target of 200-400 pips as compared to pairs like EURUSD, NZDUSD, AUDUSD etc.
We only trade the major pairs as this gives us the chance to open trades with very low spread. Spread is a cost. If you lose the trade, you will have to pay this cost. So take it seriously. Read this post in which we show you how to use the trailing stop loss. To tell you the truth, we never use trailing stop losses. Our trading strategy has 2 components. We first determine the stop loss. Then we determine the take profit target. We place a pending order. After that it is set and forget.