How to Choose Currency Pairs

Choosing currency pairs to work with can be one of the most difficult parts of the Forex trading process. You want to choose the pairs are going to be the most profitable for you in the long run. Here are the basics of how to choose currency pairs in the Forex market.

Average Daily Range

Every currency pair moves differently and has its own unique tendencies. Because of this, not every pair is going to work with the strategies that you use. One way that you can distinguish between pairs is by looking at the average daily range that it moves. Every day, the currency pair is going to move a certain amount of pips. The higher the average daily range is, the more active that pair is. Whenever you are looking at the average daily range of a currency pair, you want to make sure that you look at the pair over an extended period of time. Sometimes, currency pairs will move a certain way for a few weeks and then go back into their old ranges again. By looking at the average daily range, you will be able to tell how much the currency pair usually moves over the course of a trading day.

Clarity of Patterns

Something else that you will want to look at is the clarity of patterns that are created by this currency pair. If you are going to use technical analysis, you need to be able to determine when a pattern is performing with a particular currency. Otherwise, you will not have much luck when it comes to predicting which way you should trade. Ideally, you would like to be able to trade with a large trend when it occurs. However, if you are working with a currency pair that does not illustrate its trends very well, you are not going to be able to profit with this method. Some currency pairs move up and down without actually forming a clear pattern. If you are the type of Forex trader that likes to trade the trend, you are not going to be profitable with this type of pair. 

For example, the GBP/USD and the GBP/JPY pairs are two that clearly demonstrate their patterns. Whenever the market picks a direction with these two pairs, it will typically move over 100 pips before going back the other direction.

Trading Style 

Whenever you are looking at a currency pair, you also want to make sure that it fits in well with your unique trading style. There are many different methods that you could potentially use to trade the Forex market. Whenever you select a trading method, you need to make sure that the pairs that you trade fit well with this strategy. For example, if you are a scalper that likes to take small pips out of the market, you might decide to work with a currency that moves back and forth like the EUR/CHF or AUD/NZD. If you are a long-term trader, you might lean towards the GBP/USD or GBP/JPY pairs. 

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