What is Your Favorite Currency Pair to Trade?

Hello traders! In every Online Trading Academy class that I teach, the question always comes up as to what is my favorite currency pair to trade. The answer-like many in the wide world of trading-is, “it depends.” In this week’s newsletter, we’ll discuss what it takes to be a favorite, why it changes, and what to look for when trying to find pairs to trade.

20140610 Currency PairFirst of all, what makes a currency pair a good one to trade? There are really two components to this. The first should be obvious-volatility! As a trader, I basically need volatility (movement) of a pair to hope to make any money trading in the spot forex market. There isn’t much worse to a trader than to get into a position and watch it slowly wiggle back and forth, up 10 pips, down 10 pips, up 5, down 5, you get the idea. My preference would be to have at least 100 pips a day of movement, if not more! As of the time of this writing, the majors are all languishing with very low volatility. I personally measure the daily ATR to “find” where the action is. ATR is the Average True Range, very basically measuring the average high to low (the range) over a certain number of days. Most platforms default to 14 periods, which is what I use for this purpose. Currently, the majors have the following daily ATR: EURUSD 46 pips; GBPUSD 60 pips; AUDUSD 51 pips; NZDUSD 49 pips; USDCAD 40 pips; USDCHF 34 pips; USDJPY 41 pips. Looking back at the past few years on these pairs, you would see that we are at the very low end of their ranges of volatility. The bad news is we have much smaller profit targets with this low volatility. The good news? Since we are at the low end of the range, much higher volatility is right around the corner! I hope.

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