How To Pick The Best Currency Pair For Trading?
While deciding which currency pair to trade, many traders make the mistake of forming their opinion around only one currency in the pair, ignoring the other currency. Right choice of the currency pair is essential for making profitable trades.
Most of the trades involve US Dollar as either the base currency or the counter currency. Many traders make the mistake of only studying the economic factors that have the potential of affecting dollar.
This neglect of the second currencys economic conditions can greatly hinder the profitability of the trade. This neglect also makes the odds of a loss high.
The chances of failure are more when you trade against a strong economy. The weak currency in the pair could tank badly while the strong currency in the pair may become stronger than what you calculated.
Study the economies of both the currencies is essential before you decide to trade a particular currency pair. The best strategy is to choose the strong economy/weak economy pairing. This increases the potential of maximizing returns.
For example, when FED announced its intention of containing inflation in March 22, 2005 FOMC meeting; most of the other currencies tanked against the dollar. A string of other positive economic data also reinforced the dollar.
When the initial reaction was over, GBP rebounded and recovered its strength, due to the impressive economic growth of British economy at that time. However, Yen kept on depreciating due to the week performance of the Japanese economy during that time. Dollar gained more than 300 pips in two weeks against the Yen during this time.
You can see that the USD strength had a much higher impact on the struggling JPY as compared to the consistently strong GBP. Trading USDJPY would have been much more profitable as compared to trading USDGBP.
When you choose a currency pair, study the economies of both the currencies in the pair. You also need to examine the behavior of various crosses. In nutshell, the best choice is always choose the strong economy/weak economy currencies. - 23162
Most of the trades involve US Dollar as either the base currency or the counter currency. Many traders make the mistake of only studying the economic factors that have the potential of affecting dollar.
This neglect of the second currencys economic conditions can greatly hinder the profitability of the trade. This neglect also makes the odds of a loss high.
The chances of failure are more when you trade against a strong economy. The weak currency in the pair could tank badly while the strong currency in the pair may become stronger than what you calculated.
Study the economies of both the currencies is essential before you decide to trade a particular currency pair. The best strategy is to choose the strong economy/weak economy pairing. This increases the potential of maximizing returns.
For example, when FED announced its intention of containing inflation in March 22, 2005 FOMC meeting; most of the other currencies tanked against the dollar. A string of other positive economic data also reinforced the dollar.
When the initial reaction was over, GBP rebounded and recovered its strength, due to the impressive economic growth of British economy at that time. However, Yen kept on depreciating due to the week performance of the Japanese economy during that time. Dollar gained more than 300 pips in two weeks against the Yen during this time.
You can see that the USD strength had a much higher impact on the struggling JPY as compared to the consistently strong GBP. Trading USDJPY would have been much more profitable as compared to trading USDGBP.
When you choose a currency pair, study the economies of both the currencies in the pair. You also need to examine the behavior of various crosses. In nutshell, the best choice is always choose the strong economy/weak economy currencies. - 23162
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service. Download Forex Scalping Cheat Sheets!
posted by X - Men @ 8:13 AM
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