Forex trading is one of the most volatile and profitable markets in the financial sector that gives the traders an opportunity to make a profit from the currency rate movements. Whether you’re trading with a prop firm or using advanced platforms like cTrader, selecting the right currency pairs is crucial for success. With so many currency pairs available today, it’s very important to figure out which ones are suitable for your trading style and strategy.
In this article, we will look at the most important factors that should be kept in mind when someone selects the pairs of currency and we will also help you on selecting the best ones for trading to make a profit.
1. Knowing the Three The Main Types of Pairs
Dealing with the selection strategies, it is important to realize the three categories of currency pairs.
1.1 Major Currency Pairs
These are the pairs that attract the most attention from traders as they are the most commonly traded currencies joined with the U.S. dollar (USD). Additionally, these pairs are quite liquid, have narrow spreads, and are not as volatile as others. To name a few:
– EUR/USD (Euro/US Dollar) – It is the most traded forex pair
– GBP/USD (British Pound/US Dollar) – It has the highest volatility factor.
– USD/JPY (US Dollar/Japanese Yen) – It is in high demand with the institutions.
– USD/CHF (US Dollar/Swiss Franc) – A safe-haven pair during economic uncertainty.
1.2 Minor Currency Pairs (Cross Pairs)
These pairs are the ones that are not dealing with the USD but are still very liquid. Example:
– EUR/GBP (Euro/British Pound)
– AUD/JPY (Australian Dollar/Japanese Yen)
– GBP/JPY (British Pound/Japanese Yen) – Very unstable and hence, better to trade for short-term traders.
1.3 Exotic Currency Pairs
These are ones that possess smaller or lesser economies and one typical currency. These are usually not that liquid and have a bigger spread. For example:
– USD/TRY (US Dollar/Turkish Lira)
– EUR/ZAR (Euro/South African Rand)
– USD/MXN (US Dollar/Mexican Peso)
For prop traders, major pairs offer a good choice as they are more likely to be stable and have relatively known trends.
2. Factors to Consider When Choosing Currency Pairs
One of the most crucial parts of the right pair choice is the verification of aspects which affect the trading performance.
2.1 Liquidity and Spread
– Leading currencies (such as EUR/USD) have tight spreads that help to execute the transaction faster.
– 1. Trading platforms like cTrader which provide real-time spread data spawn up as good as butter things of liquidity.
– The Exotic pairs are the ones with bigger spreads, which can make the price one trades higher.
2.2 Volatility
– One trader deals with the excitement brought by the change of price which GBP/JPY and EUR/JPY cause.
– On the other hand, some people are into the stable pairs as they make it easy to predict the price and the spread (EUR/USD, USD/CHF).
– A position usually prevails in a Prop firm and trade goes well within the guiding conditions of the rules set by a manager that result in controlled volatility.
2.3 Economic News and Market Hours
– The value of USD/CAD is generally influenced by the gas price in the US.
– The development of the JPY pair is always influenced by the activity in the main Asian markets.
– The period 8 AM to 12 PM EST in London and New York is the period when forex trading is the most liquid.
2.4 Correlation with Other Assets
– USD/JPY is mostly known to have an impact in the opposite direction of the metal, such as gold.
– Among other things, AUD/USD is linked to the price of the commodity known as iron ore.
For traders, understanding these schedules is paramount: hedging their positions and diversifying their strategies using the data.
3. Best Currency Pairs for Different Trading Strategies
That is why different trading styles require specific currencies.
3.1 Scalping
For them, it is recommended to keep quick trades with the smallest wins. Forex pairs that are good for this include:
– EUR/USD – The huge volume and low spreads.
– USD/JPY – The fastest result and the most obvious picture.
– GBP/USD – The largest price increase for quick profit.
3.2 Day Trading
Day traders are looking for organizations with average volatility and trends that are clear. Fantastic pairs:
– GBP/JPY – The best one for those that acceleration and impulse.
– EUR/USD – The most noteworthy developments during the trading hours.
– AUD/USD – It seems very valid as it reacts to the economic data.
3.3 Swing Trading
It is also common for swing traders to go after the long-term trends. Popular currency pairs in this category are:
– EUR/GBP – The slowest but the most stable one.
– USD/CHF – The option is quite safe even in times of turmoil.
– AUD/JPY – It is one of the influenced by the economic situation globally.
3.4 News Trading
Moreover, it should be noted that news traders are the ones who watch the economic releases such as Non-Farm Payrolls (NFP). Major sets for these strategies are:
– USD/CAD – Economic changes in the United States and Canada make it the most fragile pair.
– GBP/USD – Shows the fastest reaction when the UK releases its economic data.
– EUR/USD – Makes a massive play when the European Central Bank comes out with the statement.
In case you are trading with a prop firm, one of the potential conditions could be the restriction on news trading by them and that is why it is a must that you check their rules before entering trades.
4. Using cTrader to Analyze and Choose Currency Pairs
cTrader is an impressive program that contains quality charting tools, Deep Level II Market Pricing and full pace solution to all the clients’ needs. Here’s how to use it effectively:
4.1 Check the Spread and Liquidity Panel
– The market watch belongs to the cTrader platform, which features real-time spreads.
– It’s better to skip low-cost pairs unless there is high volatility.
4.2 Use Advanced Charting Tools
– Discover the levels of support and resistance through the utilization of Fibonacci retracements.
– Utilize RSI and MACD to confirm that the trading entries make sense.
4.3 Monitor the Economic Calendar
– cTrader has a built-in calendar that mainly focuses on the big news events.
– It is best not to take part in trading before major news events unless you are experienced enough as a news trader.
4.4 Utilize One-Click Trading
– The fast execution and low slippage both can be resulted from better orders matching.
– This trading method can be used for scalping and breakout strategies.
5. Common Mistakes When Choosing Currency Pairs
Some of the traders do errors that affect the trading plan while they are choosing the most suitable forex pairs for trading. Here are the most common:
5.1 Trading Too Many Pairs
– Prefer only 3-5 pairs so that you can keep track and learn them better.
5.2 Ignoring the Trading Session
– AUD/JPY and JPY/CHF will be actively traded during the Asian session.
In your selected pair, focusing on the times of the highest liquidity will be beneficial to you as a trend trader.
5.3 Overlooking Correlation Risks
Don’t close many same pairs such as EUR/USD and GBP/USD for trades.
– Choose from different sectors to reduce risk successfully.
Conclusion
Choosing the correct currency pairs is of paramount importance to the traders who are looking to make profits in the foreign exchange market and minimize risks. Whether you are trading through a prop firm or you are using the cTrader platform, it is essential to choose the pairs according to the liquidity, volatility, and market conditions. Forex majors like EUR/USD and USD/JPY are stable pairs that are traded most often, thus they are mostly the right choice for trading. On the other hand, minors and exotics are for those looking for a higher level of risk in return for chances of gaining more profits.
Your confidence in making the right choice of currency pairs is enhanced by your knowledge of trading strategies that you wish to adopt, the market session you choose and the economic factors which influence your activities.
