Tips for Finding the Right Currency Pair for Traders

One of the most important things in trading is choosing the right currency pair, combined with the right trading strategy. Choosing the right one has the potential to make huge profits, while choosing the wrong pair will cost you money. Therefore, it is important for traders to recognize the character of the currency pair to be traded so that the desired profit can be achieved.

There are three main things to consider when choosing a pair in the forex market: identify whether the pair is a trending or non-trending pair, find out what type of strategy the trader will be trading, and find out the true average range of the pair, which means how much couples move from day to day. Read further in this article to find out how to find a suitable currency pair for traders.

Trend Identification

The first thing a trader should do when choosing which pair to trade is identify the trend. Trend is defined as the overall direction of market movement in the past, for example, “AUD/USD has been in a downtrend for the last 6 months”. Traders can identify trends either by using trend lines or by applying a Moving Average (MA) to the trader's chart. If a pair is not yet trending, it is important to pay attention to the trend before a trader decides which pair to trade.

Pairing Trends with Trading Strategies

The next step to finding the right pair to trade is to make sure that the pair fits the strategy the trader wants to trade. If a trader trades a trending strategy, the currency pair the trader chooses must be trending. If you try to trade a trend strategy on a sideways pair, the trader's strategy will fail. If you have a trending strategy and identify trending currency pairs, the trader's profit opportunities will increase greatly. In addition, if a trader finds a pair that has been moving sideways for a certain period of time, it is important for the trader to choose a range trading or sideways market trading strategy to suit the currency pair. There are many strategies that a trader can apply to each different pair, but it is important for a trader to know the behavior of each currency pair before trading them. Many traders make the mistake of matching the right pair with the wrong strategy.

By Range

Price range is defined as the average price movement obtained from the difference between high and low prices over a certain period of time. The price range is one of the criteria that many traders look for when considering choosing a currency, because it can indicate the direction of the trend and the magnitude of price movements. In this case, the price range of the currency pair is divided into several options that can be adjusted to the needs of each trader, including:

Especially for beginners or traders who are still confused about choosing the right pair, traders can choose currency pairs with a relatively small range. The EUR/USD pair is the favorite pair chosen by traders because the moving average is still below 150 points.

If you want to trade more relaxed and not too tense, then the USD can be taken into account by traders in choosing a currency pair. The pair has a daily moving average of less than 70 points.

For traders who like a little extreme and are looking for more profit opportunities, they can choose the GBP/USD pair. The daily moving average of this pair can reach 200 points.

The most extreme pair is XAU/USD for trading gold, other commodities, as well as unknown or exotic currencies. Gold's daily moving average is nearly 2,500 points.

By Volatility

Volatility is the magnitude of the distance between the rise and fall of forex prices. High volatility means that prices go up high quickly and then suddenly drop very quickly, creating a huge gap between the lowest and the highest price at a time. Usually, volatility can be expressed in a certain number of pips (200 pips a day), an absolute number ($0.3000) or a percentage change from the price at the beginning of the period.

Trading on pairs with high volatility provides greater profit opportunities. However, it should also be remembered that a large profit means that the risk posed is also large (high risk high return).

Based on News

As is well known, a piece of news can result in considerable price volatility. In fact, news also has the potential to change the trend in the short term, so many traders have to speculate on several pairs. In these conditions, traders are advised to look for other sources of information regarding the pair to be traded.

Fundamental news is almost available in all currency pairs, especially in major pairs. For some traders, trading together with news related to the pair can be relied on to earn big profits. Nevertheless, trading with this news trading strategy must be balanced with obtaining accurate information. Traders should focus more on fundamental news in the high impact category, because high impact news is usually the most talked about and has a big impact on price movements in the forex market.

In addition, high-impact news does not always significantly affect price movements, due to the influence of other issues that market sentiment may pay more attention to.

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