How to pick the best currency pairs to trade in forex
When it comes to forex trading, there are many currency pairs to trade. To make money from forex, it is important to choose the right currency pair. The good news is, you can get a wide range of currency pairs to trade when you download mt4 as your preferred online trading platform.
If you are considering trading forex, learning how to pick the right currency pairs is important. Here is how to ensure you pair the best currencies when trading forex.
Open charts for several currency pairs
The best way to be sure that you pair currencies wisely is by analyzing charts for different currency pairs that have been traded. When analyzing, look for pairs that are making money and the ones that are under pressure. Ensure you also take note of any currencies that do not change when paired with most other currencies.
This helps you to find the best currencies to pair and trade.
Be up to date with global financial news
After you find your favorite potential currency pairs, it is essential to be knowledgeable about the money market news. Always be on the lookout for unusual market updates. Money market news keeps you up to date with the latest market trends, which informs your knowledge of currency pairs’ risk-off/risk-on situations.
With this information, you can make better decisions regarding currency volatility, thus enabling you to adjust your pairs to cover this need. While you can make money from a volatile currency, you can also lose a lot of money when taking a chance on a volatile currency without the necessary assessment.
Pair strong currencies with weak currencies
The best currency pairs to trade in forex comprise of trending currencies. The strongest pair is one made up of a strong base currency paired against a weak quote currency. For example, a EUR/USD currency pair can move upwards strongly when the euro gains as the dollar drops.
On the other hand, an AUD/JPY currency pair can lead to losses if the AUD loses while the JPY gains.
Sometimes, it can be profitable to pair a volatile currency against one that is a bit stable. However, this is a huge risk to take and only recommended for experienced traders.
Conduct technical analysis
Before you settle for any currency pairs, it is essential to conduct a technical analysis on the pairs you are interested in pairing. You can conduct market analysis by studying market charts, taking note of each currency. This ensures that you only pair currencies best suited to make profits.
Always check on your portfolio to check whether the open positions include any of the currencies you wish to pair. It is important to remain as diverse as possible in your portfolio. This can be done by avoiding to pair similar currencies more than once. For instance, if one of your trades is a EUR/USD pair, it is best to avoid creating a matching pair that includes the euro.
Weigh the value of the pip against your risk
It is normal for some currency pairs to have higher values in pip than others. While a high pip guarantees more profit in winning forex trades, it can also multiply your losses in losing currency trades. Always calculate your loss tolerance and carefully set a stop and limit order. This way, you only invest what you can afford to lose, thus boosting your confidence while trading forex.
Trust your instincts while trading
According to research, some traders make profits by trading against the masses. When most traders trade a long GBP/USD pair, it may be a wise decision to short the pair and vice versa. Trading against other traders is usually a good idea if you hold a short-term trading position.
While emotional trading is not recommended, it is advisable to trust your gut feeling when it comes to forex trading. If your gut is not settled on a trade in current market, it is best not to trade. Trading when you are in doubt can lead to making decisions that may harm your trade.