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Which Foreign Exchange Currency Pairs To Trade?

Foreign Exchange

Deciding which foreign exchange pair to trade is a matter of cultural background and location. For instance, Sydney is considered the hub of all AUD-related forex trading and is also the 5th largest forex liquidity pool in the world. So, if you’re living in Australia, it makes sense to trade the AUD/USD or AUD/JPY or EUR/AUD before thinking about trading the EUR/JPY or EUR/GBP, for example. AUD-related pair trade volumes are higher; bid/ask spreads are tighter; and, the chances of stop loss “slippage” is less. The only possible exception to this situation is with the EUR/AUD, which can experience a nice lift in foreign exchange trading as London opens up for business late in the Sydney day.
Serious traders do not fall in love with any particular foreign exchange currency pair. They are on the lookout for profitable trading opportunities and really don’t care which pair is involved. This is particularly true with “day traders”, who have a tendency to congregate wherever there are strong volatility patterns.

Why Selecting Foreign Exchange Currency Pairs Is A Vital Part Of The Trading Process

At present, over 80 currency pairs are traded in the forex capital markets. Some are traded continuously (they are called “the majors”). Others are traded almost non-stop (they are called “the minors”). The rest are traded when their pricing spreads make them profitable (they are called “the exotics”). All have different volatility patterns in different regional markets. In order to profit from trading any pair, one of the first things you have to know about is a pair’s volatility profile. You can either just watch a pair trade for a couple of days or you can whip out an “Average True Range” (“ATR”) indicator, on a daily chart, and figure out what’s going on. Use less leverage with high volatility patterns.

Knowing Which Foreign Exchange Currency Pairs Are Best

In order to make a profit, you need to have some volatility. If you live in Australia, that means that you are probably going to be trading the AUD/USD, AUD/JPY, EUR/AUD or the GBP/AUD. If you like the idea of “day trading”, then pick the EUR/AUD and the GBP/AUD – both of which have been fairly volatile in 2013. If you’re into trend trading, then go with the AUD/USD and AUD/JPY, which are joined at the hip by the USD/JPY (through the implementation of Governor Kuroda’s monetary policies). Please note that the EUR/AUD has a 1-year “inverse head and shoulders” pattern on its long-term chart and that the GBP/AUD has a 1 and ½-year “triple bottom” on its long-term chart.

Trading At The Right Time With Foreign Exchange Currency Pairs

If you’re a “day trader”, then the timing of any trade is a “do or die” proposition, particularly if you are working off of a 5-minute chart. If you prefer “swing trading” or “trend trading” – both of which might span a number of days – then, all things considered, positioning is more important than time. In Sydney, Tuesdays, Wednesdays and Thursdays have relatively bigger trading volumes. A smart cookie would remember this factoid when contemplating any trade that could be launched on either a Monday or a Tuesday. Generally speaking, Sydney trading volumes are higher in the mornings than in the afternoons. This means that you should get better bid/ask prices and limit order fills in the morning. Act accordingly.




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