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One of the most common questions i get asked is “Noah, how do you figure out what the best pairs to trade are each day?” The most simple answer i have is, i do not ever know exactly which pairs are going to be the best pairs to trade for that day. I do not know what pairs will move the most, but i do have simple rules that i use to find pairs that have good potential to move in a clean manner.
When picking out pairs to trade i stick to a few simple rules
- major pairs
- clean moving pairs
These are the most basic things that i look for and simply, looking for pairs to trade is the easy part. Being a Forex trader is very superior in this way, we can look at high liquidity major pairs and we will get consistent movement day after day. This is much superior to say stock traders who have thousands of stocks to chose from. The reason that i tend to stick to major pairs is because these 7 pairs are the most traded pairs, will high the highest liquidity, and all move very well. These pairs include: Eur/usd, usd/jpy, gbp/usd, usd/chf, usd/cad, aud/cad, and nzd/cad. These major currency pairs consist of the largest economies in the world, they trade over 70% of the total currency exchange volume, most are tied to other assets (like gold or oil) and all have high average daily moves.
The current average daily range for the world’s major currencies are
- eur/usd 55 pips
- usd/jpy 55.1 pips
- gbp/usd 101.2 pips
- usd/chf 47 pips
- aud/usd 61 pips
- usd/cad 71 pips
- nzd/usd 56 pips
With this, we can see that these different currency pairs offer ALOT of daily opportunities that can be capitalized on.
When i wake up and look for pairs to trade or opportunities to trade this is the major and essentially only step that i put into finding the pairs that i will trade. I look for pairs that have been trading very clean. What does this mean? It means that i am looking for pairs that have not been in consolidation, extreme volatility, or just moving sloppy. I will be looking for pairs that have been trending/pulling back very smoothly and that show ideal market structure price action to allow me to capture market movements. It is not completely uncommon to see some of the pairs that have been in consolidation or choppy have insane gains in a single day, i am more than happy to miss these moves because they are not clean and full moves that i like to take.
This is a prime example of a very choppy pair that i would NOT look to execute any positions on. Why? There is currently a low probability of a follow through in moves, which can increase the holding time of the position which could put you in a situation where market conditions change and your bias is inaccurate.
This is an example of a much cleaner and more opportune pair. NZD/USD was trending up and down over the last few weeks in very full and market structure respecting moves. Trading a pair that has been clean like NU here over EU above will give you a much higher percent change of a follow through in a trade and increase potential success.
Lastly, when deciding what pairs to trade i will look at the news. I will see what could cause major impacts on my currency pair i am tracking and how i can manage, avoid, or capitalize based on that.
All in all, the major thing that i do in order to give myself the best potential to finding moves every day is look at the cleanest pairs over the last few days (does not guarantee it will be clean today, but it is a higher chance), i look at potential price impacting news, and make sure i am trading high liquidity major currency pairs.