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Which Forex Pairs Should One Trade

There’s no general rule on what pairs to trade per se.  It all zeros down to personal preference. And there’s no darling currency in Forex. Any pair can give you money. And any pair can blow your account as well. However, there are various factors you can consider when choosing the pairs to trade;

1. High liquidity pairs. (7 forex majors).

They include EUR/USD, GBP/USD, USD/CAD, USD/CHF, AUD/USD and NZD/USD. All these pairs have USD and majorly this is where money is. Market makers push high volumes and they make pretty big moves.
However, for starters, it’s very much advisable to pick only one pair and concentrate on it. You can easily learn the market moves by concentrating on one pair, identifying peak formations, trends, etc and this makes your Forex skills mastery easier. I know people who have traded only  1 pair for years and make thousands of dollars every month. You can even predict the stop hunts, peak formations, consolidation, midweek reversals, quarter-points, etc with the exactness of a Jewish prophet. FYI, one of the major reasons why people lose a lot of money in Forex is being Jacks of all pairs and masters of none. The Forex market doesn’t move haphazardly. It has a pattern. To identify and master these patterns and setups, you need to begin with one pair, and as your skills progress, you can add more pairs to your list. Worse still, if you are working elsewhere, be prepared to blow your account more often than not for trading many pairs at once. You will never get enough time to watch, analyze, and master all those charts even if you have a photographic memory.

2. High ADR (Average Daily Range) pairs

These are pairs that move with a big pip range every day. These pairs will give you more pips as opposed to those with low ADR. For instance, the ADR for GBP/USD is 112 pips as of Friday (21st Sep 2017), and it moved to 222 pips. Anyone who placed a ten-cent trade (0.1) from the high of the day in this pair (it was a multisession half batman type formation) garnered at least $100 -$150 in less than 8 hours in a single trade. The ADR for NZD/CHF as of Friday is 46 pips, and it moved only 46 pips. In a nutshell, you need to have high analytical skills to gain at least half of these points. Or else, you use a high lot size or scalping which increases the risks as well.

3. Pairs congruent to the session you are trading

If you are a multi-session trader, you can choose to trade pairs that are going to be relevant to the session you are trading. For instance, during the Asian session, AUD, NZD, and JPY pairs are highly traded in this session. London Session, watch EUR/GBP and CHF pairs and in the New York Session, you can trade USD and CAD pairs. This is the most active session of the day. These pairs more often than not make big moves in the sessions they are congruent with. However, there are other fundamental factors that may make changes in this scenario. It’s not cast on a stone.

4. Personal preferences.

As it is in the real world, different people have different tastes and choices. Forex is not an exclusion. People have different opinions on various pairs and more often than not they develop bias to certain pairs. However, this is only achieved after trading for a while and experimenting with many techniques and method

Pairs Correlation

Positive Correlation: The most traded pair in the Forex market is EUR/USD. Euro is the BASE currency and USD is the QUOTE currency.
Also, three of the most traded pairs in the Forex market – GBP/USD, AUD/USD, and EUR/USD are positively correlated with each other, as the counter currency is the US dollar. Therefore any change in the strength of the US dollar directly impacts the pair as a whole. Moreover, the pair NZD/USD is also positively correlated to the above-mentioned major pairs.
In a nutshell, positively correlated pairs move in the same direction. For instance, if you were trading the EUR/USD you would also be partly trading the GBP/USD. It stands to be true then that the EUR/USD trade must be correlated in some way to the GBP/USD.

Negative Correlation – Non-correlated currency pairs to the above Forex majors include USD/CHF, USD/JPY, and USD/CAD. You must have noticed that the base currency in these pairs is the US dollar and that is the reason why they move in the opposite direction of the above-mentioned majors where the USD is the counter currency.

In conclusion, knowing which pairs move in opposite directions and which move together in the same direction is a useful tool for a trader, but can be hard to work out, particularly due to the fact that correlation in Forex can change. Market sentiment and different economic factors are fluid and can change daily leading to swings in correlations between currency pairs. A strong positive correlation may turn out to be a negative correlation; equally, a correlation on the same pair could be different depending on the time frame of the trade you are looking at. You need to train your eyes to see the setups clearly. It’s not a baby stuff thing to spot the best setups.

In the Forex market, traders have always considered the Swiss franc as a safe haven currency during times of political unrest. Given the stability of the Swiss government and its financial system, the Swiss franc usually faces strong upward pressure stemming from increased foreign demand.
A safe haven is an investment that is expected to retain or increase in value during times of market turbulence. Safe havens are sought by investors to limit their exposure to losses in the event of market downturns.

AUD/USD tends to have a negative correlation with any pairing that does not use the USD as the quote currency.

Currency pairs mastery will add to your skills in Forex trading and thereby minimize your losses. Before you enter a trade, it\’s good to confirm how the correlated pairs are behaving (especially checking the economic calendar to spot highly volatile news in these pairs), and you may also identify an anomaly that can be key to influencing your decision-making in entering a trade.  

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