How Can I Choose The Best Currency Pair For Trading?
Many forex traders choose the currency pair for trading without much study. Many traders make the mistake of forming their opinion around only one currency in the pair, ignoring the other currency in the pair. Right choice of the currency pair is essential for making good returns.
USD is the most important currency in the world economy. USD is heavily traded against other currencies. Many trader trade currency pairs like USD/EUR, USD/GBP, USD/JPY, USD/CHF etc. Many make the mistake of only studying USD while ignoring the other currency in the pair.
In the forex market, this neglect of the foreign economic conditions can greatly hinder the profitability of the trade. It also increases the odds of a loss. You need to understand a little bit of fundamental analysis when you make your choice of the currency pair.
When you trade against a strong economy, the chances of failure are more. The weak currency in the pair could flop badly while the strong currency in the pair may appreciate more than what you calculated.
Study the economies of both the currencies is essential before you decide to trade a particular currency pair. The best strategy is to choose the strong economy/weak economy pairing. This increases the potential of maximizing returns.
For example, when FED announced its intention of containing inflation in March 22, 2005 FOMC meeting; most of the other currencies tanked against the dollar. A string of other positive economic data also reinforced the dollar.
When the initial reaction was over, GBP rebounded and recovered its strength, due to the impressive economic growth of British economy at that time. However, Yen kept on depreciating due to the week performance of the Japanese economy during that time. Dollar gained more than 300 pips in two weeks against the Yen during this time.
Therefore, USD strength had a much higher impact on the struggling Yen as compared to the consistently strong GBP.
While choosing a currency pair, study the economies of both the currencies in the pair. You also must examine the behavior of the various crosses. In brief, your best choice should always be the strong economy/weak economy currencies. - 23196
USD is the most important currency in the world economy. USD is heavily traded against other currencies. Many trader trade currency pairs like USD/EUR, USD/GBP, USD/JPY, USD/CHF etc. Many make the mistake of only studying USD while ignoring the other currency in the pair.
In the forex market, this neglect of the foreign economic conditions can greatly hinder the profitability of the trade. It also increases the odds of a loss. You need to understand a little bit of fundamental analysis when you make your choice of the currency pair.
When you trade against a strong economy, the chances of failure are more. The weak currency in the pair could flop badly while the strong currency in the pair may appreciate more than what you calculated.
Study the economies of both the currencies is essential before you decide to trade a particular currency pair. The best strategy is to choose the strong economy/weak economy pairing. This increases the potential of maximizing returns.
For example, when FED announced its intention of containing inflation in March 22, 2005 FOMC meeting; most of the other currencies tanked against the dollar. A string of other positive economic data also reinforced the dollar.
When the initial reaction was over, GBP rebounded and recovered its strength, due to the impressive economic growth of British economy at that time. However, Yen kept on depreciating due to the week performance of the Japanese economy during that time. Dollar gained more than 300 pips in two weeks against the Yen during this time.
Therefore, USD strength had a much higher impact on the struggling Yen as compared to the consistently strong GBP.
While choosing a currency pair, study the economies of both the currencies in the pair. You also must examine the behavior of the various crosses. In brief, your best choice should always be the strong economy/weak economy currencies. - 23196
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service. Download Forex Scalping Cheat Sheets!
posted by X - Men @ 8:38 AM
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