I want to share some guidance here today that I wish I would’ve published a bit sooner. And while it’s not about a method or technique, or a trade set-up that’s now passed by, it’s a bit of perspective that will likely prove useful as you strive to become a more knowledgeable and profitable trader.
Deciding which markets and/or currency pairs to trade is just as crucial as determining which strategy and time frame(s) you’ll use. And, just because the “majors,” or US-dollar-based currency pairs, are most liquid, doesn’t mean they’re your best and only choices!
Far from it, in fact, and that’s why I want to show you a selection of currency pairs besides those “usual suspects.” These are all liquid and tend to trend nicely, making them well worth a look as you strive to not only master your trading strategy, but also the markets and time frames in which you apply it.
Given their high volume and popularity, major currency pairs like EUR/USD, USD/JPY, and GBP/USD have the liquidity and volatility to suit most anyone, from day and swing traders to longer-term trend traders. Upwards of 50% of daily forex volume occurs in these three currency pairs alone, but the fact is that a number of lesser-known crosses—pairs many traders are less likely to consider at first—may exhibit more favourable price action for trend traders.
These are a few examples:
EUR/GBP: Traders have many choices for capitalising on price action in the British pound (GBP), and while many choose GBP/USD, another GBP cross, EUR/GBP, may be an equally good choice, especially when trading GBP strength. Debt problems and central bank policies in the Eurozone weigh steadily on the EUR, while bouts of US dollar (USD) strength may hinder GBP gains. As a result, when compared to GBP/USD, EUR/GBP may be a more suitable trade target for those looking for smoother and more consistent trend moves.
GBP/AUD: While trading somewhat “under the radar” of many traders, GBP/AUD actually exhibits one of the clearest trends seen among any of the major or cross currency pairs in recent months. Here, too, you have central bank policies that are headed in seemingly opposite directions, which have created a backdrop for steady GBP gains. For traders who are open and willing to venture outside of the major currency pairs, GBP/AUD has been—and could continue to be—a great destination for “set-and forget” style trading in the direction of the overall trend.
See also: An AUD/NZD Trade 20 Years in the Making
EUR/JPY: The combination of these two much-maligned currencies has made for some sharp and sizable trend moves this year, and with USD/JPY trading mostly sideways, some think that a better way to trade the Japanese yen (JPY) into 2015 year-end is to go short EUR/JPY. Even GBP/JPY currently has many calling for a downside retracement, and thus, the comparatively weaker EUR might give up even more ground if JPY strength does ultimately prevail.
Also keep in mind that technical analysis is universal and can just as easily be used to trade other markets and asset classes outside of forex, usually with the very same rules for entry and exit, setting profit targets, and managing trades.
While commodity markets like gold and oil have cratered, these markets also played home to some of the most momentous trend moves in history, so they’re worth watching, although too many are now caught up in trying to pick bottoms in these beleaguered assets. If (or perhaps when) a new bear market or renewed economic problems send investors looking for a safe store of value, though, these markets are widely expected to heat up again.
In the meantime, we’ve recently scouted—and even booked winning trades—in select stock indices and elsewhere. So if you ever want to venture beyond just your favoured currency pairs, don’t be afraid to paper trade and try your hand at other markets. Here’s one where we’ve had particular success of late:
FTSE 100: All of the very same patterns and set-ups we look to exploit on the charts of various currency pairs are routinely in play on the chart of London’s FTSE 100 Index. By interpreting price action on the charts, and then entering end of day, we can often dampen the impact of intraday news and data and enter new positions with less risk as well. (See this recent example of a FTSE 100 trade gone right!)
Looking back now, do you feel like you sometimes try so hard to learn about your strategy and methods that you simply assume or take for granted that you’re trading the best available markets and/or currency pairs?
Sometimes lost in the shuffle of learning how to trade is the fact that what you trade is a central part of the conversation. I think even I’ve neglected to emphasize that sufficiently of late, and that’s why I wanted to do it here today.
Remember that it’s not just your strategy you’re looking to master, but also your chosen markets and assets. So go learn how they tend to move, the days and/or times when your strategy works best, and be sure to evaluate lesser-known markets and currency pairs to make sure you’re trading what fits you and your strategy the most. It’s highly important and too often overlooked, and it’s one of the rare facets of your trading that’s entirely within your control, so own it as you strive to trade your best!