Author Bio

At some point early in a new trader’s development there comes the question “Which currency pair should I trade?” There are a few considerations involved. Let’s walk through them.

Trading time frame

Generally speaking, the longer the trading time frame a trader is looking to operate in, the more pairs should be included in their trading plan. There’s two main parts to this factor. One is the fact that the more short-term you trade the more specific attention you are likely to need to give to each pair you trade. High frequency intraday traders (scalpers, etc.) generally can only focus on one or two pairs. Longer term traders have the time to look at many of them.

The other factor is trading opportunities. Short-term traders can usually get plenty of trading opportunities out of a small number of pairs, but longer-term traders need a larger number to ensure they get enough quality chances. Think about a position time frame trader who is looking for trend following options. In any given pair there may only be a couple of trades a year, which is going to make performance very choppy. Tracking a larger number of pairs will tend to mean more trades and more consistent trading.

Trading style

Some pairs are more suitable for certain types of trading than others. For many years the JPY pairs were excellent for trend trading, while GBP/USD has long been a notorious counter-trend mover. The variations in these sorts of patterns will tend to mean some pairs have characteristics more suited for how a trader wants to trade than others. Matching the two up will take some experimentation on the trader’s part.

Be aware, though, that markets do change. A pair that exhibited one set of characteristics for a long time can change. Sometimes it happens fairly suddenly, and sometimes the change is only temporary. Usually, though, changes in the trading characteristics of a pair are caused by some kind of shift in the bigger macroeconomic picture. For example, many pairs went from relatively low volatility, range-oriented patterns in the middle 2000s to more volatile and trendy in the latter part of the decade thanks to the financial crisis and related developments. This is something to always be monitored.

Volume, Volatility, and Liquidity

For the most part, the forex market has more than sufficient liquidity to allow ready trading in all the major pairs and crosses. Once you venture into the realm of more regional and emerging market currencies, however, things get trickier. Spreads can be very wide and the markets can be very choppy because of the low volume in those pairs. The vast majority of new traders would do well to keep away.

Minor pairs aside, there are considerations in terms of deciding on what pair or pairs to trade based on the time of day being trading for those looking to intraday or short-term trade. Pairs are always going to be more active during the primary trading day of the currencies involved. For example, the AUD and NZD will be most volatile and active during the Asian session. AUD/USD and NZD/USD will certainly move at other times of day based on the influencing factors on the USD, but when Sydney and Wellington are active, with data and news items being released, things are going to be that much more exciting in terms of short-term volatility.

The USD, of course, is a special case. It can and will react to all kinds of developments through the whole of the trading day. As a result, trading USD pairs will be suitable for just about all traders.

Trading account denomination

One of the harder things for new traders to wrap their heads around is often the accounting where trading a pair that doesn’t involve the currency their account is denominated in. For example, EUR/GBP is complex for a US-based trader because of the requirement to translate profits and losses from EUR or GBP back into USD. To keep things simple from that perspective, it’s probably best to start off focused only on pairs which have at the account currency as part of the pair.

Bringing it all together

Generally speaking, new forex traders are going to want to stick to the major pairs to avoid thin markets and high spreads. They will want to focus on pairs where one of the currencies is the same as their account currency. If day trading is the intended path, then picking pairs which tend to move during the time of day traded will be important. Similarly, short-term traders will want to narrow their focus down to a small number of pairs, but longer-term traders can look at many. Then it comes down to finding a pair or pairs which suit the style of trading the trader intends on using, which is going to require some testing and experimentation.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

In the spirit of transparency I must admit that I am not, by anyone’s definition, a Forex expert. I speak the language, I read plenty of news and commentary on it, and I am surrounded by the topic all day, but let’s just say my name won’t be in lights on the Currensee Leaderboard any time soon. One of my roles at Currensee is to serve as the company’s pulse on the Forex world, which means it’s my job to dive into technical analysis and economic news, and deliver to our community the most relevant and interesting Forex articles, blog posts, and videos available. If you want to be in this “inner loop”, look no further than Twitter, where we share the best Forex analysis and news we can find.

There’s no shortage of pointers for amateur and experienced traders out there. I’ve found some of the best insights come in the form of lists. These fortune cookie-sized quick tips have a few things in common. They are typically…

• Short and to the point;
• Timeless (you can read them today, tomorrow, or a year from now and the point still rings true);
• Not experience biased (whether you’ve been trading for a week or a decade, there’s something for everyone to take away);
• And best of all, actionable!

So here are some lists I’ve found along the way.

TEN: 10 things that separate the pros from the amateurs. My personal favorite tip is to be the contrarian trader. Buy the rumor, sell the news. You know what they say about following the herd…

NINE: These 9 tips will separate yourself from the 90% of unprofitable traders. Ironically, one of the points is about taking every piece of “advice” with a grain of salt.

EIGHT: The 8 most common Forex trading myths. Stop-losses are not a sign of weakness; use them.

SEVEN: 7 tips to Forex success. Alright, so some of the tips on this list contradict themselves – take the well-marked trading path, but think like a contrarian; trust your instincts, but don’t get gushy and emotional.

SIX: These 5 reasons + 1 emotion (that’s 6) are the reasons for your margin calls. Ignore them at your own peril.

FIVE: Ready to go pro? Here are 5 must-haves before quitting the day job.

FOUR: The 4 best technical indicators for new (or new to Forex) traders. No need to get elaborate with your charting skills at the beginning.

THREE: 3 challenges to conquer for trading success. Some days you’re up, some days down, and sometimes you’re just bored. There’s money to gain (and lose) in each scenario.

TWO: Divvying up the major currencies into 2 categories: risk averse and those with an appetite for risk.

ONE: Every Forex trader had to start somewhere, and they likely wish someone smarter had been around to share with them lesson #1 of trading. It probably would have saved them a lot of pips and heartache.

+ONE: One more tip for the road. Heed this warning: Do not put all your currency pairs in 1 basket. There are seven major currencies, and countless combinations. Don’t pigeon-hole yourself with one pair.

Read any words of wisdom for Forex traders recently, have it saved to your bookmarks, or (even better) write some of your own in a blog? Share it with us!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

Currensee member Ray Y. initiated a discussion recently in the Currensee platform about diversification. He wants to know:

“Why do I not see more about diversification? Surely we should all be looking for a hedge against our manual trading drawdowns.”

Diversification in Forex is a tricky thing. The number of currencies we trade are relatively few. Yes, there are a fair number of different pairs to trade, but there are only maybe eight currencies which are commonly traded (depending on what you include among the majors). That doesn’t provide much opportunity for diversification. If you want to avoid any overlap between currencies you can only have 4 positions on at any given time before you start introducing multiple exposures to a single currency. Even there it gets a bit dicey since the EUR and CHF tend to trade so similarly most of the time, and other currencies can also be highly correlated at certain points.

I’ve seen a number of folks talk about diversifying or hedging by matching up one pair against another, such as EUR/USD and USD/CHF. The thought is that since the euro and Swissy trade so similarly, if you go long EUR/USD and long USD/CHF you’ve got a hedge. What many fail to realize, though, is that the USD positions in such a set-up will nearly or completely cancel each other out (depending on trade sizes). What is left is a long EUR, short CHF exposure – so short EUR/CHF. Obviously, if you want to be short EUR/CHF, then it’s better to just short that cross directly rather than legging into it and having two spreads instead of just one.

Just keep in mind that adding an AUD/JPY to an existing EUR/USD trade may be diversifying, but adding EUR/JPY to EUR/USD is altering your exposure in one fashion or another (either canceling or double the EUR position, depending).

Now, having said that, Ray’s question offers up the potential to discuss diversification of our trading methods or systems. The idea there is that one system’s good results over some time span may offset poor performance in another. This is certainly something worth exploring. For example, a trend trading system could be paired with one which is more range oriented. In theory at least, these two systems would perform best under different market conditions. So long as the losses in one don’t wipe out the gains in the other, it could work out very well.

The issue with running multiple systems, as with any situation where you might be running multiple positions, is one of risk management. Two systems always run the risk of having the same trade on simultaneously. If you don’t account for that potential you could end up with a double-sized long in EUR/USD, for example, and find yourself suffering a loss you did not anticipate if something dollar-positive happened.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.