Forex trading is all about choosing the right currency to trade. Unfortunately, one of the common mistakes committed by most forex traders is not understanding the correct currency to trade. Such mistakes can affect your chances of turning a profit. You can have all the strategies and charts but if you are not intelligently choosing the currency pair to trade, you are still bound to lose the trade? Here are some tips on properly choosing a currency pair to trade.
Choose The Busiest Currency
It makes sense to trade with the busiest currency on the table. Recent statistics have revealed that 70% of forex trading is between the US dollar, Euro, and Japanese Yen only while the British Pound and Australian Dollar accounts for the other 10%. Robert Janitzek reveals that the US dollar is the most dominant of all the currencies so focus on each of the other currencies against the US dollar. This means that you do not have to worry about 80 pairs and crosses. Nobody is watching currency crosses or its levels.
Narrow Down The Field
Now that you know that it is only worth watching a few currency pairs, your next choice is which currency is the most volatile. This is important because movement of the price will determine your earnings. You need to buy and sell when the price difference is huge to make the greatest possible profit. Robert Peter Janitzek reveals that there are different tools and methods that can help you forecast volatility and they include the following:
Clusters refers to the average daily range a currency moves. It is likely that a currency pair would move more than 1% to an amount closer to 3%. This means that when the currency pair moves more than its average volatility, it is likely that the movement will continue and then reverse over the short term.
Trend and momentum is essentially the same thing. Major currencies, in recent years, have shown a greater probability of moving in the direction of their long-term trends. When trading on the forex market, if you will trade during the Asian business hours, your best opportunity will be to trade Asian currencies such as the Japanese Yen and Australian dollar. To maximize your earning potential, find a way to trade longer time horizons.
So narrows down your choice of currency and trade the most volatile currency. Finally, watch where the long term trends are. This will be your keys to success in the forex market.