Forex Pairs: How to Find Your Trading Match
A lot of people had asked me this question. It even seems like one of these trading secrets no one really know how to go about. Ever since I became a forex trader I studied the different Forex pairs and came to different conclusions.
Different Forex Pairs, Different Opportunities
At some point, when I was trading a disastrous Expert Advisor that helped me wipe a good part of my account away; I realized that different pairs move differently to different market conditions. For example I learned that GBP/JPY has enormous ranges as well as EUR/JPY. They can really trend for monstrous moves of thousands of pips.
I also learned that the AUD or the CAD had a correlation to Gold price, I also noticed that when a developing market, like let’s say Brazil moves, it affect all the currencies from developing countries. I learned a lot of interesting information that, when it came to trading, really didn’t gave me any edge or advantage.
At some manuals or courses I learned, wrongly, that you should become an “expert” in your chosen pair. Like you are supposed to know everything about ONE SINGLE PAIR to trade it best. I will not say that is wrong, I have no idea, maybe someone is making all his/her money by trading only the CAD/JPY or the EUR/TRY however I really doubt it.
The Forex market is so dynamic and diverse that, normally there are always Forex Pairs to trade. If you limit yourself to one or two, or even ten! You are losing a big amount of opportunities that could come handy to make more money. Of course you have to be aware of your strategy.
For example if you are scalping or even day trading, the spread could be a big factor in your Forex pairs selection. In that case I’d recommend looking for good spreads. However if you put enough attention you might find that some of the wider spread pairs also have more volatility, that could compensate for whatever spread you might be paying.
Of course I don’t know your personal strategy, but what I am saying is that, in my experience there’s no need to limit your choice of Forex Pairs to trade, specially if you are swing trading (my favorite way of trading), since a few pips more or less won’t make or break your day.
My recommendation, as always, is to understand your strategy first and then look for everything necessary to make your life easier and improve your chances of success. If you need the tightest spreads to scalp 10 trades an hour trying to achieve 3-5 pips in each one of them then, yes, by all means, go for the EUR/USD and maybe the USD/JPY. However in most cases I’d recommend broadening your vision and look into other opportunities.
If you want to trade with a great broker that has tight spreads and great execution you can go to my friends at Pepperstone. It’s an Australian broker, so maybe it won’t suit all nationalities, and yes, I’ll get a small commission if you open an account with them.
Different Forex Pairs, Different Needs (Forex Trading Secrets Revealed)
This would be my list on points to consider when deciding what Forex Pairs to trade:
- Are you a scalper? – Go for the tighter spreads and the fastest possible execution.
- Are you a Day Trader? – You’ll have more liberties, but still be aware of wider spreads like EUR/NOK, for example, and limit yourself to more normal forex pairs.
- Are you a Swing Trader? – Your horizon will broaden enormously, if the swings are big enough you can pair almost any pair. Also you can include commodities (such as Gold, Silver, Copper, Oil, etc.) or even Index trading (SPX500, UK100, NAS100, etc.)
- Are you a position trader? – Then by all means trade anything available to you.
- Are you a news trader? – Then you shouldn’t need this guide, since news trading require a deep understanding of correlations between pairs, so you might know very well by now what to trade and when to do it.
As always I encourage you to think with your own mind and don’t buy everything “gurus” tell you (not even me in an all cases). Go out to the markets with an open mind, and a demo account please; no risking real money to investigate new markets. And see for yourself how things work and how you can improve and expand your trading.