Movements of currency pairs

Posted by Daytrader on September 24, 2009 under Daily Forex review | Be the First to Comment

There are two most important factors present in the market for choosing a currency pair.

1. The daily average range of PIPS that makes the pair moves.

2. Patterns which are produced by the pair have clarity of vision.

In the world of FOREX trading, the most popular currency pair that is quite in demand among FOREX traders is EUR/USD. And yet on personal level I have never traded with that currency pair primarily because it has a very small average daily range of movement as compared to other pairs of currency. After closely following all the pairs of currency every day for some years, after such a long period of research I discovered that most of the pairs of currency are correlated to each other directly or inversely. Almost all the pairs of currency are doing something similar so there is no point in trading all of them.

Basically it does not really spread any sort of risk in trading several pairs of currency which all are doing the same thing. The currency pair GBP/JPY is the real big king of all the PIP movements so if you going to enter any trade with that pair of currency you will definitely make more profit for doing the same amount of work as compared with entering a trade on another pair. Many people are really very afraid of this pair of currency because of the volatility but that is because traders do not recognize or identify the right patterns and entry signals and since this pair of currency moves large number of PIPS, they are afraid of making large losses rather than concentrating and focusing on the large potential wins.

Clarity in patterns of currency is the other crucial factor and some pairs of currency don’t even make any sense in terms of producing patterns which are recognizable. Since all our trading decisions are solely based on various signals and patterns, it really makes sense to first look at the recent history of that specific pair of currency that has been considered for trading and see if the pair has any sort of  history in production of chaotic or recognizable patterns. Most of the times EUR/JPY forms several patterns that are more easily recognizable, as compared to the patterns that are made by GBP/JPY. Therefore it is more desirable for traders to trade with this pair of currency even though the same movement will often produce more PIPS on the GBP/JPY. Since these two pairs of currencies are very closely correlated I also often use the EUR/JPY in order to gain insight view of the patterns being formed on the GBP/JPY because when a particular entry occurs it is likely to leave impact on both the pairs.