Kamis, 08 April 2021

How to Choose Your Forex Currency Pairs

There are dozens of currency pairs you can choose from that are highly liquid and has a large trading volume. Major pairs such as the EUR/USD, USD/JPY, AUD/USD, and others that involve the US dollar are highly recommended currency pairs for beginner traders in the forex market.

However, just because they are the currency pairs that most people use to trade, doesn’t mean any one of them will be the right currency pairs to be traded at all times. You will first need to identify three things before you even enter a trade.
Here are three steps to choose your forex currency pairs.

How to Choose Your Forex Currency Pairs
(source: Photo by Nataliya Vaitkevich from Pexels)

1. Identify the trend 

There is a common saying that the trend is your friend. Following blindly on hype, by hunting down the currency pair with an unusually large volume on that day, is akin to gambling. This is because you are gambling on an aggressive price movement that could make you win big or lose greatly. Rather than trading at the second when banks are open, you should look at the trend holistically and figure out where the trend is moving.

2. Identify points of reversals

There are a variety of analysis techniqes to identify points of reversals. You can find the support and resistance levels based on historic data, study candlestick patterns, and use moving averages and the MACD indicator in tandem to identify a high-probability signal that the price is about to move towards a desired trend. You don’t simply want to enter a trade after a strong swing occurs. Trade when the trend pauses or makes small retracements to gain large profit potential.

3. Use the ATR to identify Stop Loss level

Don’t use a set percentage to set up your Stop Loss. Instead, the average true range (ATR) can help you find the typical average range of a candlestick at a given time scale. Your stop loss should exceed just beyond the highest or lowest of the last candlestick, by a given value of the ATR at that candlestick.

After you have consolidated your trading set up, you can enter the trade with confidence, and exit with grace. What this means is that you will take a realistic profit while hedging yourself against further loss by an unexpected change in trend.

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