Trading Different Currency Pairs
Volatility in Forex is a complex issue, as a volatile market can provide trends and ranges and other patterns such as divergence, but it can also lead to sharp reversals in direction and irregular moves which are hard to trade. A major currency pair will tend to be subject to a wide range of fundamental influences affecting the way it moves. However major currency pairs tend to be liquid. Illiquid markets can display moves which gap and move in irregular ways. For this reason, the beginner trader may wish to focus on major currency pairs. While they are subject to a wide range of market effects, it can also be possible to narrow down which fundamental factors are likely to have an strong or sustained influence. An example is EUR/USD, which is influenced by both US Interest Rates and European Interest rates.
However how a market reacts is usually complex. This can be seen in the initial reaction to fundamental data seen in seen in news trading when the currency pair may not react as expected. Even if a change in interest rates trends the pair in a given direction, retracements can be expected which make for a complex market at the time frames which the trader may find viable to trade on. For example at lower time frames, a pair may be deeply retracing from the general direction it is going on a higher time frame. It is helpful to look across time frames to see what is happening above and below. Even if a pair is trending up while more more generally retracing on a lower time frame, this retracement may itself be leading into a more general change in direction. These factors are part of the complexity of the Forex market and why it is hard to trade.
While a major pair such as EUR/USD will tend to have a wide range of patterns, it can also be highly volatile. However EUR/USD can be a good starting point to understand how currency pairs behave as it can show the range of behaviour to be expected from currency pairs. This said the trader may wish to explore other major pairs such as GBP/USD, AUD/USD, USD/CAD, USD/NZD, USD/CHF and USD/JPY. Each pair while they have similarities will also have differences.
Thus one ways to approach the issue of what are the best currency pairs to trade is to trade a set of major currency pairs. Of course the trader may also wish to examine other pairs some of which evidence behavior the trader may find interesting to learn about. Focusing on a set of pairs is a way to structure an important part of the beginner traders approach, which is to trade on a demo account. It provides a rationale for doing so and can make this more interesting. A beginner trader needs to practice on a demo account to get a more general sense of how to trade. The trader may wish to take a course or read books on the subject and when they trade on a live account, start with smaller trade sizes and build from there.
