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Forums > Main Street > General Trading Discussion > Selecting the Right FX Pairs for Your Strategy
Messages (13 Replies)
24 Mar 2017 12:10 PM
    Now that you've looked at deconstructing a pattern, we're now going to discuss pattern selection. Pattern selection will help you to nail down what is most important to being a competent pattern trader. As with most things, there is an 80 – 20 rule where as 20% of what you learn here will provide 80% of the results. In other words, there are a few key components that we must select to focus on to decide whether a pattern is worth trading.

    Advanced selection will help you decipher what is important versus what is not important. While this may sound simple I can tell you from many years of live trading experience as well as discussing trading in real time with traders every week that a lot of traders unintentionally as opposed to more important ideas, which we will discuss.

    The Low Hanging-Fruit

    It is not uncommon for traders to want to force a trade even if the probability of the move is low. What makes a low probability trade? Simply put, when the two currencies that are in focus for the trade are either collectively week, collectively strong, or in the middle of the pack it would be a mistake to expect a big move. Rather, we should look for low hanging fruit to trade.

    So what does fruit have to do with trading, you may ask? Finding the low hanging fruit is the idea of taking a present imbalance in the markets and expecting that imbalance to continue.

    You were recently introduced to finding the strong weak currency pair to trade. We will expand this idea into buying stronger currencies relative to weaker currencies and then applying your timing methodologies of technical analysis or pattern analysis.

    Hedging Overconfidence

    over the years, finding strong currencies to buy and selling them against obviously weaker currencies has proven to be a favorable approach when compared to blindly buying or selling a pair regardless of its relative strength.

    However, a trader should not presume the relative advantage will stay forever as markets ebb and flow over time and last week’s strongest can turn into next week’s weakest. This means we need to learn how to hedge overconfidence.

    This is nothing different than what hedge fund managers do who manage multiple asset portfolios. Naturally, they’ll enter a trade when an edge is evident or and assets is priced considerably below book value due to mass irrationality by market participants. But these advanced market participants understand that while an entry is important, the edge must remain such that they don’t find a cheap asset getting cheaper or their edge completely dissolving. What many traders find helpful is implementing a weekly review.

    Weekly Reviews

    A weekly review is a simple approach of analyzing the fundamentals, technicals, and the sentiment or positioning analysis of the market you’re trading. In spring of 2015, the fundamentals that drove the long USD trade that many market participants were in began to deteriorate. This was seen through week GDP readings, retail sales, and deteriorating consumer sentiment reports.

    When looking at the technical picture, a trader can get as simple or advanced as they choose.

    A simple approach could be looking at a moving average acting as support in an uptrend or resistance in a downtrend. A more advanced method could be utilizing complex technical tool like Ichimoku or Elliott wave. Either way, price is the ultimate indicator in the printing of price is one of the few facts in the market and when the price disagrees with your analysis or edge it’s often time to bow out.

    When looking at sentiment, volume or positioning analysis, a trader is looking to see whether or not the market is loading into the position or exiting the position.  Volume is a simple visualization of what direction the market is favoring.

    When volume shows a breakout relative to prior volume against your trade you likely want to shorten the leash because enthusiasm is building on the opposite side.

    Selecting the right market can take a lot of trouble out of the trading process but it is no magic cure. Risk must always be managed and you should review your edges to ensure they are remaining in your favor.

    Happy Trading!
    Open Account: Real / Demo http://www.instaforex.com
    19 Apr 2017 12:21 PM
    That is very important matter! In addition, I have selected my live trading instruments by many ways of analysis! Right now, I am working with only 5 trading pairs in my live account but I have too many options in my live trading chart! Even, you can earn enough money by using a single trading pair if you have a profitable trading strategy! So, focus on quality rather than quantity!
    24 Apr 2017 7:32 AM
    Yes, it’s very important! But, I don’t have any specific target on it! In my live trading account I have almost 30 trading pairs from Forex to Indices! So, where I get good trading opportunity according to my trading knowledge, then I use it! That’s my trading system actually and I’m comfortable with this strategy!
    26 Apr 2017 1:52 AM
    Very good topic, thank you first of all. Actually despite of having most powerful trading strategy that’s not possible at all to make profit with great consistency if you don’t have comfortable and suitable trading pair. Generally the traders who are newcomers have to choose the currency pair which has lowest trading spreads.
    30 Apr 2017 5:00 AM
    If you want to get maximal result by your trading strategy first of all you have to make sure your currency spreads. For the newcomers EUR/USD is most suitable pair for using any kinds of trading strategy in particularly the scalping that brings profit in a short time.
    27 May 2017 3:52 PM
    If you are a scalper should choose the currency pair which has lowest trading spreads that
    is very supportive to get maximal result by scalping which brings profit in a short time.
    29 Jun 2017 10:54 AM
    Euro was my most favorable trading currency pair that I have been using from my first day of trading. But when I move scalping approach I fall a great trouble because of its fastest movements.
    30 Jun 2017 11:05 AM
    I have seen many expert consider scalping as a risky strategy. I am not willing to consider scalping as a risk for the newcomers, if the newcomers want to get maximal result by scalping with certainly they have to make sure first of all the currency pair which has lowest trading spreads, otherwise it can be a great risky
    30 Jun 2017 4:09 PM
    Now my favorite pair is the EURUSD .
    this is due to its high volume.
    This is what we want to see in the market.
    volume and liquidity and this pair has it all.
    it is my best pair to trade as far as Forex is concern.
    02 Jul 2017 10:08 PM
    I think most of the trader's favorite pair is EURUSD because of his high volume and high movement during the day. So most of the traders use it. But I like to work with JPY pairs they don't have a high movement complete day but when they have they take high jump within hours.
    08 Jul 2017 1:17 PM
    The best part of the forex strategy is money management –make sure every time you trade , you don’t risk more than 2-3% of you account otherwise you will break your account pretty soon. I learned that lesson from my own experience.
    08 Jul 2017 2:04 PM
    Please don’t trade a currency whose central bank has been known to place an artificial cap on its value against another currency: Swiss Franc. I always trade EUR/USD , because these two currencies represent stability being the world’s largest trade partners reserve currencies.
    19 Oct 2017 11:06 PM
    This is why, I worked more than 20 pairs in my demo, I basically wanted to know the list of flexible trading pairs according to my personal trading system and now I am working on only 5 trading pairs in order to my demo trading result.
    03 Jan 2018 12:22 PM
    I think, traders need to select their trading pair so sincerely; even new traders should start with limited number trading pair! If they are successful in a particular trading pair, then they should add new trading instrument otherwise not! By the way, I started with only 2 pairs but now I am using more than 16.
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