Unfortunately, too many traders focus on trying to perfect entry methods, not realizing that if you correctly pick what is going to up today, for example, then the exact entry method you use is not going to make a major difference to your trading results.
Why do traders make this mistake, and how can they decide which currency pair or pairs to trade each day in a more intelligent way? Most traders are eager to start making lots of money. The way to make lots of money quickly, so they are told, is to trade using smaller timeframes — this is at least theoretically true.
These considerations are both rational and truthful, at least to some extent. The problem is, that they are very far from being the most important consideration that should influence which currency pairs you trade. Despite all this, my linear thinking caused me to miss out on the only real trading opportunities of , which came in the JPY pairs and crosses.
So how should you decide which currency pair or pairs to trade? This is a good comparison to the Forex market, which works the same way. So, which table would you go to? The busiest one, with the most players and most money on the table, or a quiet one in the corner with just a couple of players there? Obviously, it would make sense to choose the busiest table. So why should Forex trading be any different? Are there any ways to determine that?
Well, you could try reading the Forex news to spot the biggest things that are happening in the market now. Dollar, the Euro, and the Japanese Yen only. Dollar is by far the most dominant of all these currencies, so it makes sense to focus on each of the other currencies against the U. Now you know that it is only worth watching a few currency pairs, you will find it much easier to know which one or ones to be trading any day.
The method to use to answer this question in detail, is which of these currency pairs are likely to have the most volatility? You need volatility, because if the price does not move, how are you going to make any money? You need to buy and sell at the widest price differentials you can possibly find, to make the greatest possible profit.
There are a few ways to forecast where market volatility is likely to be, and if you apply the methods I outline below, you should get some good answers. So, when you see a currency pair move by more than its average volatility, that high volatility is more likely to continue than reverse over the short term.
Whichever has the largest value, is probably the pair it makes sense to focus on tomorrow. Another crucial factor is trend, or momentum they are essentially the same thing.
The major currencies such as the U. Dollar, Euro and Japanese Yen, have, in recent years, shown a greater probability to move in the direction of their long-term trends. One good rule of thumb in trading major currency pairs is asking yourself, is the price higher or lower than it was 3 and 6 months ago , and trading mostly or entirely in the same direction as any long-term movement, if it exists.
If you are trading only during Asian business hours, you will probably find that your best opportunities will involve Asian currencies such as the Japanese Yen and Australian Dollar. If I had the wisdom to trade daily charts back then, I could have profited from that big movement in the Yen very easily, even at night while I was asleep, with traders in Tokyo doing the heavy lifting for me!
Finally, if you watch an economic calendar to see when the major central bank or most important economic data releases are scheduled for the major currencies, you can see that if you are in a trade before those releases, those releases might provide you with the volatility you need to turn your trade into a big winner, or at least show you where some volatility is likely to appear. So, narrow your focus to the major pairs, and trade the currencies showing the highest volatility, and watch where the bigger long-term trends are.
This should give you the best chance of success in Forex trading. Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. Learn more from Adam in his free lessons at FX Academy. Registration is required to ensure the security of our users. Login via Facebook to share your comment with your friends, or register for DailyForex to post comments quickly and safely whenever you have something to say.
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Report Broker Scams Forex Widgets. Narrowing Down the Field Now you know that it is only worth watching a few currency pairs, you will find it much easier to know which one or ones to be trading any day. Adam Lemon Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. Sign Up Read Review. Free Forex Trading Courses Want to get in-depth lessons and instructional videos from Forex trading experts?
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