5 Methods To Select Your Best Forex Pairs

There are more forex pairs out there than you can imagine. With dozens of different currencies existing around the world, the possible combinations for trading them are well over 200 – meaning that there are potentially 200 forex pairs for you to choose which one to trade form. In your forex trading 101 you would have learned about the big 7 or big 8 currencies that are the most frequently traded in the forex world.

These include: USD, EUR, GBP, JPY, CHF, AUD and CAD at the minimum. You should, of course, be aware of these major currencies and always keep an eye on them. There are many different methods a forex trader can use to pick their best pairs, and we’ll look at 5 of the best methods to select which pairs you want to trade. Let’s expand your trading 101 knowledge by looking at the strategies top traders use to identify the pairs they want to be trading.

1) Pairing according to strategy

This is a very obvious and popular way to do it – you pair currencies that fall into the type of strategy you want to execute. If you choose a strategy built around trending pairs, then your picks are going to be very different to if you were running a reversal strategy. This strategy is dynamic and a pair can shift from trending to reversing in the span of a few seconds, so in this strategy your pair could be changing frequently, requiring you to have a diverse portfolio of currency at your back.

2) Pairing according to correlation

Some currency pairs have statistical correlations attached to them – for instance, when one increases in value, so does another. Currencies that have high levels of correlation also share a high level of probability that both are losing or winning. This strategy is recommended for advanced traders as it can add to the risk considerably.

3) Pairing according to liquidity

You might run into a pair that seems to be the perfect fit for your strategy, only to realize that one of the currencies in your pair isn’t liquid enough to trade. You want to be trading currencies that have active traders with decent spreads, or you might be unable to buy or sell more of that currency if there’s no one else actively trading it. These pairs make research necessary and require you to check the charts to ensure they’re actually worth trading.

4) Pairing according to your style

Some currencies have unique characteristics that might make the more attractive to you. For instance, EURGBP might be attractive to you due to how slow it moves. This could be ideal for someone who trades part-time or is looking to trade relatively stress-free as compared to the fast moving, popular pairs. A pair like GBPJPY is great for those looking for a highly volatile pairs, if that suits your trading style.

5) Pairing according to forex tools

There are plenty of tools out there to make the forex trading life easier. These tools provide valuable charts and data about currencies and their changes. The thing to consider here is your personal experience with both the tool and the currency. You might be using an app that’s giving you the analysis that JPYAUD is the best pair to trade right now, but your personal experience tells you not to – then you need make a decision whether you trust your gut feeling or a tool more. These decisions will help you build trust in your set of tools which will be helping you make the right decisions down the road.