The problem of currency pair choice often becomes a real problem for the trader. A lot of traders use only one currency pair, others - use several pairs, and some try cross-rates.
The choice of a currency pair, except individual preference, depends on numerous factors which need to be taken into consideration.
First of all, it is necessary to consider their features:
1. The volatility of a currency pair.
Volatility is the range of fluctuations of a currency pair during a certain period, more often - a day. According to this, some currency pairs are traded in a rather narrow range, without acute fluctuations, others – on the contrary. So, currency pairs, GBP/JPY, and GBP/USD are highly volatile. Trading these pairs is recommended only with the use of strict trading strategy expecting sharp and serious movements. Otherwise, it is possible to lose the deposit very quickly. Currency pairs - EUR/AUD, EUR/CAD are much quieter, USD/CHF, USD/JPY - are quiet and the most traded.
The quietest are EUR/GBP, EUR/CHF – fluctuations of which is 3-5 times lower, than on the major currency pairs.
2. Time of the greatest activity.
Each currency pair is most active in certain time. So, EUR/USD and GBP/USD are most active during the European and American sessions and inactive during the Asian session. It isn't recommended to trade them during Asian session because of numerous false signals. It is recommended to trade a currency pair, active during this or that trading session.
3. Correlation of currency pairs.
Movement of one currency pair causes the movement of other couples simultaneously or with a small temporary log. Exist, so-called currencies-allies, when the movement of one currency pairs causes directed movement of others with a high degree of probability.
Trading several currency pairs.
Trading several currency pairs at the same time is rather a difficult occupation and requires certain skills to control and track them. So this option can't be recommended to the traders beginners.
Characteristic of some currency pairs:
EUR/USD – one of the most popular pairs, however, in connection with many professional players in the market, this couple is rather difficult to predict and it often changes the direction of movement.
GBP/USD – one of strongly volatile currency pairs. Often hits levels of support and resistance. Many traders consider that this couple duplicates the movement of EUR/USD, but it is incorrect. This currency pair strongly reacts to political events and economic data of its own country, therefore news of Great Britain needs to be traced carefully.
USD/JPY – one of the most unpredictable currency pairs with sharp and unexpected jumps which often lead traders to losses. The pair is very sensitive to political and economic events.
USD/CHF – belongs to the majors. In general, repeats movement of EUR/USD, but better shows dynamics of movement directly of the dollar. It can be used for the forecast of movement of other currency pairs.
USD/CAD — belongs to resources currencies. Movement of a currency pair closely correlates to the movement of oil prices. If the oil price increase, the Canadian dollar grows therefore it is very important to watch forecasts and tendencies of the oil market.
AUD/USD and NZD/USD — currency pairs which have similar behavior. Work well with technical analysis. Are influenced by the prices of metals and weather conditions. In case of a drop in prices on metals and bad weather the rate, as a rule, decreases.
EUR/JPY — very unpredictable couple. This financial instrument is very difficult for beginners. Forecasts movement is often wrong and doubtful.
GBP/JPY — the extremely unpredictable and dangerous currency pair. Beginners should stay away from this pair.
CHF/JPY — this currency pair is predictable and can be recommended for beginners. For the analysis of movement, it is possible to use EUR/JPY charts, which often duplicates movements, but makes it a little earlier.
EUR/CHF — the ideal option for beginners. Fluctuations are very small. Sometimes there are periods of very quiet movement. Trade during such periods is capable to bring considerable surpluses to the deposit.
GBP/CHF — a currency pair often follows EUR/CHF. In general, this currency pair is not the best option for beginners.
EUR/GBP — one of the quietest currency pairs. Movement of a currency pair sometimes doesn't exceed several points.
When a trader have chosen a currency pair he needs to study all the peculiarities – volatility, reaction to the political and economic news, interrelation with other currency pairs, behavior at various trading sessions.
It is necessary to remember that each currency pair requires matching of the trading strategy - this determines the success of trading.
Good luck in trading and choose wisely!