“Which Forex pairs should you trade?” is a common question for beginners stepping into the Forex market. Today, I’ll share insights on currency pairs and some key rules to consider when selecting pairs for trading.
This content is primarily for new traders, part of Basic Forex Knowledge, but even experienced traders may find a few points they’ve never noticed before.
Main and Cross Currency Pairs
Main Pairs
Main pairs are the ones involving the US Dollar (USD) paired with seven major currencies:
- EUR/USD: Euro & US Dollar
- GBP/USD: British Pound & US Dollar
- AUD/USD: Australian Dollar & US Dollar
- NZD/USD: New Zealand Dollar & US Dollar
- USD/JPY: US Dollar & Japanese Yen
- USD/CAD: US Dollar & Canadian Dollar
- USD/CHF: US Dollar & Swiss Franc
These pairs usually have the lowest spreads and are highly liquid.
Cross Pairs
Cross pairs are combinations of the seven major currencies excluding USD, totaling 21 pairs, including:
EUR/GBP, EUR/JPY, GBP/JPY, AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, CHF/JPY, CAD/JPY, CAD/CHF, EUR/AUD, EUR/CAD, EUR/CHF, EUR/NZD, GBP/AUD, GBP/CAD, GBP/CHF, GBP/NZD, NZD/CAD, NZD/CHF, NZD/JPY.
Beyond the 28 Most-Traded Pairs
A Forex broker often offers hundreds of trading instruments, including:
- Currency pairs beyond the majors, like SGD, CNY…
- Commodities: Gold, Silver, Oil…
- Stocks from major US and global companies
- Stock indices, agricultural products like coffee, cocoa, soybeans, corn…
This article focuses on 28 top-traded currency pairs plus Gold, totaling 29 popular instruments for Forex traders.
How to Choose Forex Pairs
- Prioritize the 7 main pairs: EUR/USD and USD/JPY usually offer the best spreads.
- Most stable pair: EUR/USD, ideal for beginners due to smooth movements.
- Most unpredictable pair: GBP/USD, with frequent sharp reversals.
Key Rules When Trading Forex Pairs
1. Avoid trading conflicting main pairs simultaneously
- Main pairs fall into two groups: XXX/USD and USD/XXX.
- If USD is expected to rise, BUY USD/XXX or SELL XXX/USD—but not both. GOLD generally moves like XXX/USD.
- Example: EUR/USD expected to rise + USD/JPY also rising → BUY EUR/JPY, not both pairs.
Analogy: Like stock markets: if VN-Index rises, pick one stock to BUY or SELL according to trend, not both opposite directions simultaneously.
2. Understand cross-pair rules
Cross pairs follow the Positive/Negative Correlation Principle:
- For cross pair ABC/XYZ:
- ABC correlates with ABC/USD or inversely with USD/ABC
- XYZ correlates with USD/XYZ or inversely with XYZ/USD
BUY example:
- ABC/USD rising (or USD/ABC falling) & USD/XYZ rising (or XYZ/USD falling)
- ABC/USD rises more than XYZ/USD or falls less than USD/XYZ
Examples:
- EUR/GBP rises if EUR/USD rises and GBP/USD falls (or moves sideways)
- CAD/JPY rises if USD/JPY rises and USD/CAD falls
- EUR/CHF rises if EUR/USD rises and USD/CHF rises (or sideways)
3. Follow the currency strength principle
- Identify strong vs weak currencies:
- Buy strong currencies (leaders)
- Sell weak currencies (laggards)
Example:
- EUR stronger than GBP → BUY EUR/USD instead of BUY GBP/USD
- EUR stronger than JPY → BUY EUR/USD rather than SELL USD/JPY
- CAD stronger than AUD → SELL USD/CAD instead of BUY AUD/USD
- JPY stronger than CHF → SELL USD/JPY rather than SELL USD/CHF
- Assess strength by technical analysis (price charts) or fundamental analysis (macro indicators).
- Strong currencies may not always maintain strength, but historically, leaders have a higher probability of staying strong.
Conclusion
Choosing the right Forex pairs requires understanding main vs cross pairs, correlations, and relative currency strength. While nothing is absolute, focusing on higher probability trades significantly improves success.
I hope this guide helps new traders make better decisions. Share it if you find it useful for yourself and friends entering Forex.
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Best regards,
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