The British pound and the Japanese yen currency pair is one of the most volatile currency pairs out there, and false signals are not uncommon. If ever there was a pair that teaches lessons in trading quickly, GBP/JPY would be it.
Its this volatility that has earned the pair many a moniker, and while traders may have different names for it, most of them point to one thing — it's best to trade GBP/JPY with caution.
The GBP/JPY pair is popular for the same reason that it's dangerous – it moves with extreme volatility. It's exciting and has the potential for big scores as well as devastating losses. Tight stops and poor risk management can deplete your account in a matter of days rather than weeks with this pair.
Beginners are attracted to it because of its promised deliverance of pips – price interest points. But this is definitely a pair that beginners should stay away from. What's unfortunate is that the volatility can cause a sound trading system to lose money fast because the veracity of the pair is often trendless. The moves that have taken traders out were simple, very volatile moves in a consolidation phase. Another pair that has a similar behavior is GBP/NZD.
This currency pair can be traded with extreme care and with very good risk management. It has been known to average a move of 150 pips a day, and it moves as much as 200 pips on some days. Stop losses have to be set wide, and lot sizes should be small. Some traders will cut their normal trade size to roughly 1/3 or even 1/4 of their normal trade size. The upside of this is that you can aim for higher targets.
This pair requires a lot of respect. The moves happen quickly, and they are big. If you plan on scalping, be careful not to get scalped yourself. If you're a beginner, find another pair to trade until you get the hang of Forex trading. The more experience you have, the better.
Even if you do have trading experience, start with "toe in the water" trades and trade this pair for two to three weeks before moving on to bigger trades. Everyone loves the idea of collecting pips quickly, but this pair can give and take away in very short order. If you keep that in mind, you should be fine.
Once you get the hang of it, you may find that you're hooked. It's been said that once you trade this pair, you'll never go back.
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