Forex Pairs to Focus on and Avoid
Traders, welcome to Video 8 of the Forex Beginners Course. This is Cory
Mitchell. In this video, we are looking at forex pairs to focus on and
avoid, brought to you by Investoo.com
There are many combinations of forex pairs to trade, although not all of
them are going to be worth trading. If a pair doesn’t have a lot of
liquidity or interest in it, then the spread’s going to typically be
bigger, which makes it harder to trade. So, if a pair moves 100 pips but
the spread’s 15, it’s going to be much harder to make money on that than
say a pair that moves 100 pips, but the spread is only 1 pip.
So, you can see the difference there, when there’s a 1 pip spread and 100
pips of movement, you have 99 pips to potentially capture; whereas if it
moves 100 pips and your spread’s 15, there’s only 85 pips there to capture.
So, it’s a lot less, and a lot more difficult to make profit.
The less liquid a market, the more prone it is to random movements as well.
And that’s because one decent sized trade can come in and move the market.
So, even a small trader, if there’s almost no liquidity in a pair, a simple
order coming in for a few hundred thousand, or a few million, which is
quite possible with the leverage even for a small trader, can move that
market and cause it to spike. And typically, that makes a market harder to
trade because it’s going to be more erratic. In pairs where there’s a lot
of liquidity, you’re not going to get as many of those spikes, so it
becomes a little bit more fluid movement and easier to trade and profit
So, currencies we want to focus on are main currencies that are used around
the world — the Euro, the US Dollar, the British Pound, Swiss Franc,
Japanese Yen, Canadian Dollar, Australian Dollar, and New Zealand Dollar.
Any combination of these currencies should provide at least a decent forex
pair to trade. So, you can combine them in any way — the Euro/NZD, the US
Dollar/AUD, the British Pound/CAD.
But the forex pairs with the highest volume are the Euro/USD, the British
Pound/USD, the AUD/USD, the USD/JPY, the USD/CAD, and the USD/Swiss.
Notice, all of these have the US Dollar. These are pairs. The US Dollar’s
the world’s reserve currency, so it is the most used currency in the world.
So, all these major pairs contain the US Dollar.
These are what most traders trade, with the addition of what we call a few
cross pairs. So, examples of those would be the British Pound/JPY, or the
Euro/JPY. You may find you like a few other pairs that don’t include the US
Dollar and that’s fine. Just pull them from this selection of currencies.
So, whatever it is, just excluding the US Dollar you might trade the
British Pound or the CAD/JPY, AUD/NZD. Lots of different combinations, but
keep them within this group of currencies.
So, while there may be tradable moves in other currencies for example, the
Danish Krone or the Hong Kong Dollar, they’re not recommended for traders
for the reasons we talked about before. They are prone to a few more spikes
if a big trader comes in; more erratic movements, bigger spreads simply
because they’re not as heavily traded. And we have more than enough
currency combinations on the prior page to give ourselves a ton of trading
opportunities, so we don’t need to go into very small currencies to make
We want to avoid pairs as mentioned, like the Danish Krone, Hong Kong
Dollar, Polish Zloty or Turkish Lira, simply because we don’t really need
to trade them. If they become more popular in the future especially like
the Hong Kong Dollar or something like that, we may start to use them in
the future. But for now, we are going to focus on these pairs.
So, there’s nothing wrong with these currencies. It doesn’t mean that
they’re bad or that they’re going down or they’re going up, or anything
like that. It’s not a reflection of them as a currency. All it is that as
traders, we need to be where the volume is, where the spreads are tightest;
where we have the greatest profit potential in terms of managing our risks
and rewards for that pair. And we simply have a better opportunity in these
pairs which are heavily traded, more liquidity, tighter spreads, than we do
in currencies such as this.
If we pull up a platform here, we can see the Euro, USD, Swiss are right
now a very tight spread. I’m using an ECN account here, so spreads are even
a little tighter than what most brokers will offer. But we can see spreads
below a pip. Euro, USD spreads around a pip or lower. USD, JPY, spreads
around a pip or lower. Even in a few more oddball pairs — the NZD/JPY
which we call a cross pair, we’re still looking at about a one pip spread.
But then we come here to the Euro, Turkish Lira and we can see 90, 83,
looking at about a 15 pip spread here from 79.9 which is close to 80 to
around 95. So, that is a 15 pip spread. It’s going to be much harder to
make money with a 15 pip spread as opposed to a 1 pip spread or a 2 pip
spread even, or 3 pips as we see in some of these other pairs.
So, what we want to do is simply hide those. Get rid of them so that they
don’t become a distraction for you. Because as I mentioned, there will be
opportunities on those. You will see chart patterns on those forex pairs as
well. But it’s much better to trade a pattern in pairs like this, which are
associated with our major currencies such as the AUD, the Swiss, the
Japanese Yen, New Zealand Dollar, British Pound, Euro, US Dollar.
In order to show other symbols or hide other symbols in MetaTrader, you can
just right click on the Market Watch window. And to get that again, it’s
just this little button here – symbols. And then you can scroll through
this and see whichever you want to see in this. So, you can add them and
click Show, and that will make it show up here. And if you click something
and then it shows up and then you want to hide it later, you can just click
Hide. So, that will delete it from this list.
Basically, you want to create a list in here of the pairs that you are
going to focus on, and then specifically focus on those. Don’t worry about
any other pairs. You can see I follow quite a few. That’s 10 years of
experience, so I’m comfortable with monitoring this many pairs. You may
decide that you only want to watch the Euro/USD, the British Pound/USD, and
the USD/JPY for example. In that case, get rid of all the other pairs.
Simply focus on those. Have them in your Market Watch window. Create charts
for them, and that’s it. Don’t get distracted by the other pairs, because
they do not offer you the best opportunities.
So, focus on these pairs whether it’s the highest volume ones which are
associated with the US Dollar. Or, if you trade a few crosses as well, that
should be fine. Ideally, you want to trade the ones which have volume. And
you’ll notice that because they have the tightest spreads. So, the tightest
spreads are typically the ones that you want to give the most attention to,
and avoid pairs that have large spreads or low liquidity such as we’ll see
with currencies like this.
Until next time, happy trading. Get into your demo account. Set up your
platform so that you’re only looking at the charts that you want; only
looking at the pairs that you want to focus on. And get rid of all those
pairs that have high spreads, low liquidity, erratic movements, and just
focus on those high quality, high liquid currencies that we discussed.
Until next time, happy trading.