WHICH PAIR TO TRADE & WHY ?

I received a text message from my elder sister this evening asking me on which pair to trade. Instead of replying her message, I decided to put it on my blog so that I can share with others and refer them myself later on.

Frankly speaking, the major pairs are GBP/USD, EUR/USD, USD/JPY and USD/CHF. Apart from these majors, we have favorite crosses in GBP/JPY, EUR/JPY, CHF/JPY as well as EUR/GBP, EUR/CHF and GBP/CHF. Some other most common pairs are AUD/USD, NZD/USD and USD/CAD.

Talking about my favorites, I am trading the 3 majors only that include GBP/USD or GU, EUR/USD or EU and USD/JPY or UJ. I do not have any specific explaination why I do not trade USD/CHF.

At times, I do trade GBP/JPY (GJ) as well depending on timing and market hours. I do not trade GJ on regular basis because that is the scariest pair among all others.

It could jump 20 to 50 pips in no time so if you ever to trade that pair, never ever put your stop loss anything below than 50. Check your timing as well. You would feel victorious if you got it right. Otherwise, it's like falling into a dungeon.

Normally the movement is in tandem with GU as well, depends. The optimum SL is always 100, depending on your trading style and strategy. Otherwise, you could be stopped every now and then by the market swing. Try it and you'll know what I am talking about.

Back to my favorites, let me justify my choices. This is solely base on my experience and opinion in dealing with these pairs.

First of all, I started trading the EU pair only. EU is the most traded pair in the world and hence the liquidity is high apart from low spread offered by most brokers on this particular pair. For new traders, it is always good to start with EU. Why? The movement is reasonable, gentle and quite predictable compared to GU and GJ. Daily average range is about 150 pips.

Later I realized that though trading one pair will limit my risk, it is also limiting my chances in making better profit. It is not that I have to trade the 3 pairs at one time, it is about seeking the best possible opportunity to make an entry that could be profitable from any of these pairs.

Hence the next recommended pair is UJ. UJ's movement is much slower than EU but once it moves, it hardly looks back. Hence, trading this pair requires a little bit more patience in waiting for the perfect setup to appear. Let the market comes to you instead of you chasing the market. The best is to watch out for the 4hrs candlestick with 12&6 SMAs plus RSI and Stochastic Indicators. Daily average is about 100 to 140 pips.

After you familiar with these 2, the next one I would recommend is GU. GU's spread is slightly higher and the movement is quite aggressive compared to EU and UJ. So watch out! These pair though not as brutal as GJ, but it does make a killer move from time to time. It can easily move 100 to 150 pips within an hour candlestick. So my advice is, careful and time your entry well. Daily average is between 200 to 250 pips.

Ok now, you may ask why am I trading 3 pairs instead of 1 or more than 3? I have my own reasons.

Though it is good to focus on one pair as a start, I tend to over-analyse the pair that I lost my overall perspective on the forex market. Apart from that, I am limiting my profitability by hanging on to one single pair only. Of course if you talk about swing trade, it could be better to focus on a pair. But for a scalper or day trader like me, sticking to one pair will only limit my profit chances. Though I am trading 3 pairs, normally I would only open 1 position at a time.

Now, why not more than 3 pairs?

If I were to trade more than 3 pairs, I would lose my focus easily. So 3 pairs are just nice for a humble trader like me. Trading too much pair without proper planning could easily cut your free margin if you're not careful. So, do not fancy about trading every single pair offered by your broker unless you try it on demo first. Get a feel about that pair and then decide.

I guess that answers the question. Start with the majors first since the 4 majors are the most traded pairs in the world apart from low spread offered by most brokers. If you wish to try any other pair, go ahead but make sure you analyse the pair movement plus any related fundamentals that could affect its movement for the day.

To me, this is very subjective. The choice is yours... The brokers and the market never cares after all... ;)

p/s: I made most of my daily profit from trading GU.