Choosing the right forex pair is an important ritual. In addition to minimizing risk, you can also get maximum profit.
Choosing a forex pair before trading can be categorized as one of the important things. Why is that? Because choosing a forex pair before trading provides several benefits. You can find out the characteristics of a pair, so that the approximate strategy and trading setup can be adjusted as expected. Also, by implementing strategies and setups that match the character of the pair, losses that arise can be minimized. Just take advantage of the pair that is considered the safest, most comfortable, and most enjoyable.
How to Choose a Forex Pair
In choosing a forex pair, you can use several criteria as a consideration. The criteria for selecting a forex pair can be chosen based on price movements per day (range), the level of volatility, or the impact of fundamental news.
1. By Range
The price range is defined as the average price movement obtained from the difference between the High and Low prices (High - Low) during a certain session time period. The price range is one of the criteria that many traders look for when considering choosing a forex pair, because it can indicate the direction of the trend and the magnitude of price movements. In this case, the forex pair price range is divided into several options that can be tailored to the needs of each trader, including:
- Especially for beginners or those who still want to find a suitable pair, you can choose a forex pair with a relatively small range. The EUR/USD pair is the favorite pair chosen by traders because the moving average is still below 150 points.
- If you want to trade more relaxed and less tense, then you can take NZD/USD into consideration in choosing a forex pair. The pair has a daily moving average of less than 70 points.
- For those of you who want to trade a little more extreme and look for more profit opportunities, you can choose the GBP/USD pair. The daily moving average of this pair can reach almost 200 points.
- The most extreme pair is XAU/USD for trading Gold, other commodities, as well as previously unknown (exotic) currencies. Gold's daily moving average is nearly 2,500 points.
2. Based on Volatility
Volatility is the magnitude of the distance between the rise and fall of forex prices. High volatility means that prices go up high quickly and then suddenly drop very quickly, creating a huge gap between the lowest and highest prices at a time. Usually, volatility can be expressed as a specific number of pips (200 pips a day), an absolute number ($0.3000), or a percentage change from the price at the beginning of the period (8.2%).
But did you know? Actually, trading when there is volatility is not recommended. Volatile market conditions make the pair difficult to predict, so the level of your profit or loss is also unpredictable. Surprisingly, some people are even more excited to trade using pairs with a high level of volatility. Choosing a high-volatility forex pair can be considered a challenge by some traders, because that is where their trading skills are put to the test.
Trading on pairs with high volatility provides greater profit opportunities. However, it should also be remembered that a large profit means that the risk posed is also large, aka High Risk High Return. If you are interested in getting more profit from volatile pairs, you can choose GBP/USD or GBP/JPY.
3. Based on News
As is well known, news can cause considerable price volatility. In fact, news also has the potential to change the trend in the short term, so many traders have to speculate on several pairs. In such cases, you are advised to look for other sources of information regarding the pair to be traded.
This fundamental news is almost in all forex pairs, especially in major pairs. For example, in the GBP/USD pair, the Fundamental News that often appears for GBP is in the European session, between 2 pm and 7 pm. As for the USD, impactful fundamental news usually appears in the US session.
For some traders, trading together with news related to the pair can be relied on to earn big profits. However, trading with this news trading strategy must be balanced with obtaining accurate information. Also, you are advised to focus more on fundamental news with the High Impact category, because high impact news is usually the most talked about and has a big impact on price movements in the forex market.
In addition, high impact news does not always significantly affect price movements, due to the influence of other issues that market sentiment may pay more attention to. Therefore, trading with the news sometimes also requires a further understanding of fundamental analysis and the intermarket linkages between forex and other financial assets.
Conclusion
Choosing a forex pair before entering the market is a strategic step in optimizing profits. Use one of the pairs you are interested in, then analyze it before making a transaction. Selection based on range, volatility, and news will really help you focus on one pair that is considered fun and comfortable to use.
The key, focus on one of the pairs you are interested in, understand its characteristics through analysis, so that it is ready to be used for trading. In addition, trade according to your financial capabilities. Do not use the money that has been planned to finance basic needs as trading capital. Good luck!
In addition to the methods above, maximizing profits can also be done by knowing the correlation between two pairs in forex. You can use this correlation as a guide for making trading decisions.
