With so many different currency pairs to choose from, new Forex traders just want to know which pairs are the best pairs for them to start trading. This article explores the pros and cons of some of the most popular pairs and guides the new traders towards the pairs that best suit their trading temperament.
The average Forex broker offers about 25 separate currency pairs to trade. Most of these pairs involve at least one of the major world currencies (the euro, dollar, pound or yen) although some also offer trading in a few exotic pairs as well. With so many choices at hand, it can be difficult at times for a new trader to decide upon one or two pairs to trade consistently.
Adding to that confusion is the fact that some pairs will normally move slowly but surely in one direction for an extended period of time (EUR/USD and GBP/USD are good examples of that type of pair) while others have a well documented history of gyrating wildly up and down in price within a very short time period (GBP/CHF and GBP/JPY are both good examples of the latter).
In deciding which pair or pairs to trade, it would behoove the new trader to first decide which type of trader they wish to become: a long-term Trend trader or a short-term Range trader. Making this decision first helps simply because once this decision is made, traders can then better evaluate an individual pair to determine if the pair fits their trading style.
For instance, a Trend trader who is looking for a consistent 50-100 pips per trade might settle on the EUR/USD. This pair is the most widely traded pair, always has the most volume in play during a trading day, and in most cases will move steadily in one direction for 50-100 or more pips. Also, once a trend is established in the EUR/USD, the pair normally will not retrace in price to a large degree, which allows the trader to move their stop-loss to break even quickly once a trend develops, turning the trade into a "free" trade, where the worst case scenario is the trade closes and they make no money, but they also lose no money on the transaction.
Some trend traders are looking for more than just 50-100 pips, and those traders will look towards the more volatile pairs, such as the GBP/CHF or the GBP/JPY. Because these pairs are more volatile, a larger stop-loss is normally called for, and price must normally move a significant amount (75 pips or more) before the trader can safely move their stop-loss to break-even.
Comparing the two, you'll notice that the conservative trader who chooses the EUR/USD is normally exiting the trade right about the time the aggressive trader (GBP/CHF or JPY) is just starting to move their stop-loss.
It all boils down to the traders own philosophy. Either you are willing to accept the greater risk for greater gains, or you are not. If not, stick with the EUR/USD.
For Range traders, the same holds true. If you are in a range on the EUR/USD, the odds are that the range is probably no more than 20-25 pips. This limits your ability to earn more than 10-20 pips on a trade, depending on when you get your entry signal. However, since the EUR/USD is a "plodding" pair, the odds favor your reaching a point where you can move your stop-loss to break-even and again find yourself in a "free" trade.
Range trading the more volatile pairs is also possible, and in fact you will often find ranges that extend to 50 pips or more. However, because of the volatility of these pairs, price movement can work against you just as easily as it can work in your favor and many a Range trader has found themselves suddenly at -40 pips or more on what they were hoping would be a quick 20 pip gain.
If you have the stomach for this kind of aggressive trading, the rewards can be great, but so are the risks. For a new trader, the best option is to start with the slower pairs (EUR/USD or GBP/USD) and hone your skills in a lower risk environment. After you have mastered trading the slower pairs, then you can decide if you want to take on the additional risk involved in trading the more volatile pairs.
The average Forex broker offers about 25 separate currency pairs to trade. Most of these pairs involve at least one of the major world currencies (the euro, dollar, pound or yen) although some also offer trading in a few exotic pairs as well. With so many choices at hand, it can be difficult at times for a new trader to decide upon one or two pairs to trade consistently.
Adding to that confusion is the fact that some pairs will normally move slowly but surely in one direction for an extended period of time (EUR/USD and GBP/USD are good examples of that type of pair) while others have a well documented history of gyrating wildly up and down in price within a very short time period (GBP/CHF and GBP/JPY are both good examples of the latter).
In deciding which pair or pairs to trade, it would behoove the new trader to first decide which type of trader they wish to become: a long-term Trend trader or a short-term Range trader. Making this decision first helps simply because once this decision is made, traders can then better evaluate an individual pair to determine if the pair fits their trading style.
For instance, a Trend trader who is looking for a consistent 50-100 pips per trade might settle on the EUR/USD. This pair is the most widely traded pair, always has the most volume in play during a trading day, and in most cases will move steadily in one direction for 50-100 or more pips. Also, once a trend is established in the EUR/USD, the pair normally will not retrace in price to a large degree, which allows the trader to move their stop-loss to break even quickly once a trend develops, turning the trade into a "free" trade, where the worst case scenario is the trade closes and they make no money, but they also lose no money on the transaction.
Some trend traders are looking for more than just 50-100 pips, and those traders will look towards the more volatile pairs, such as the GBP/CHF or the GBP/JPY. Because these pairs are more volatile, a larger stop-loss is normally called for, and price must normally move a significant amount (75 pips or more) before the trader can safely move their stop-loss to break-even.
Comparing the two, you'll notice that the conservative trader who chooses the EUR/USD is normally exiting the trade right about the time the aggressive trader (GBP/CHF or JPY) is just starting to move their stop-loss.
It all boils down to the traders own philosophy. Either you are willing to accept the greater risk for greater gains, or you are not. If not, stick with the EUR/USD.
For Range traders, the same holds true. If you are in a range on the EUR/USD, the odds are that the range is probably no more than 20-25 pips. This limits your ability to earn more than 10-20 pips on a trade, depending on when you get your entry signal. However, since the EUR/USD is a "plodding" pair, the odds favor your reaching a point where you can move your stop-loss to break-even and again find yourself in a "free" trade.
Range trading the more volatile pairs is also possible, and in fact you will often find ranges that extend to 50 pips or more. However, because of the volatility of these pairs, price movement can work against you just as easily as it can work in your favor and many a Range trader has found themselves suddenly at -40 pips or more on what they were hoping would be a quick 20 pip gain.
If you have the stomach for this kind of aggressive trading, the rewards can be great, but so are the risks. For a new trader, the best option is to start with the slower pairs (EUR/USD or GBP/USD) and hone your skills in a lower risk environment. After you have mastered trading the slower pairs, then you can decide if you want to take on the additional risk involved in trading the more volatile pairs.
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