Finding the Right Pairs for Your Forex Trading Strategies
When you look at different forex trading strategies you have to consider the different currency pairs you should be using. Many new traders think that they can use a single currency pairs for any trading strategy that they have. This is not actually true because different currency pairs work in different ways. There are some pairs that are considered trending pairs while others are considered range pairs. You need to find the pairs that will work the best for your trading strategy.
Short-Term Forex Trading Strategies
It is often harder to determine the correct pairs that you should be using for short-term trading. With long-term trading you simply have to determine whether the pair ranges within a set support and resistance range. If it does then you can use it for your long-term trading. Short-term trading is a bit trickier because of the small amounts of profit you can be making.
The first step you have to take is to determine the short-term trading strategy you are going to use. Some short-term forex trading strategies have trades that last a few minutes while others have trades that last a few hours. The length of time for your trade is important and will affect the currency pair that you use.
The Average Daily Movement
When you are looking at currency pairs for short-term trading you need to consider what the average daily movement is. Ideal candidates for these trades are currency pairs that have a high volatility. This means that they should have a high number of pip movements per day.
To determine what the average daily movement is you should look at the maximum movements of the currency pairs for a single day. There are some trades who take the maximum movements over a week and find the average. This is often considered to be a more realistic amount than a single day’s average. To lower the amount of work you will have to do it is recommended that you only look at the most commonly traded currency pairs.
When you calculate the average movement you also have to consider what the average spread was. Once you have these two averages you should subtract the spread average from the movement average. This will give you a better idea of the actual profit movements. Of course, you have to consider that it is rare to get the full movement when you are trading.
To find a more realistic average movement you should find 80% of the movement. This means that if the average movement for the pair was 100 pips then your realistic movement is 80 pips. You should then find the spread as a percentage of the realistic movement. To do this you will divide the average spread by the realistic movement and percentage this.
For short-term trading you need to find the currency pair that has the lowest percentage. The reason for this is that you do not want all your profits to be taken by the spread. With high percentage pairs this will be the case. Lower percentage pairs will give you a greater profit on the small pip movements that you are looking at.