How to Choose a Currency Pair for Trading in Forex?

Aspects of trading

The most critical aspects of trading is choosing the appropriate currency pair in conjunction with the appropriate trading strategy. The right choice is likely to earn a substantial profit and selecting the wrong currency pair could cause you to make you lose money. This is among the commonalities that the market for forex has with the stock market, except instead of trading individual stocks, we trade forex pairs.

There are three major aspects to take into consideration when selecting your trading pair in the Forex market.

Step 1: Recognize the trend

The first thing you need to make when deciding the right pair you want to invest in is determine what is trend. Trends are defined as the direction in which the market has been moving in recent times like, for instance, “the Aud/Usd has been in a downward trend for the past six months”. It is possible to identify trends with trend lines or using Moving averages (MA) to your charts. If the pair hasn’t been trending, it’s essential to observe the trend’s sideways direction prior to making a decision on which pair to trade.

Step 2 Combining your trend with your Trading Strategy

The next step in finding the best pair to trade is to ensure that the pairs you choose are compatible with the strategy you plan to use. In the case of a trends-based strategy, your pairs need to have a trend. If you try trading an approach that is trending on an exchange that is not trending it will be an unsuccessful strategy. If you are using an approach that is trending and you find the pairs that are trending, your chances of becoming successful in trading increases significantly.

In addition, if you spot one that’s been in a sideways trend for a long time, it’s crucial that you select an option that is a range or market trading with a sideways strategy that is compatible with the pair. There are a variety of strategies you could apply to each distinct pair, but it is essential to know the nature of each pair is prior to you decide to trade it. A lot of traders commit the error of attempting to match the right pair with the incorrect strategy.

Step 3 Note the ATR

ATR (Average True Rate) refers to the amount, in average of movement in pips within the course of a single day. ATR is crucial since if you don’t know the amount the pair is moving on average it’s more likely you’ll reach the stop-loss mark. This is essential when deciding the pairs you’d like to trade according to your trading strategy and goals. If you’re an aggressive trader trading scalps and is trying to achieve an impressive profit within a short time, it is important to be aware of the pairs with an ATR that is high because they tend to fluctuate a lot, so it is important not to make your stop loss to be too loose. Knowing the average spread of the pair, as well as the strategy you’re using to use for trading makes a big impact on the outcome that you make in trading.

Many traders fail to consider carefully choosing the currency pair they’re trading , and believe it is possible to trade every currency pair using any strategy. This is among the major reasons why beginners lose their money, so don’t make the same mistake by pairing with the wrong strategy or pair. Now you’re equipped with the knowledge to select the correct currency pair and the correct strategy to improve your trading. We also have a successful trade strategy for news.

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