Which Currency Pairs I Trades and Why
In this video:
00:49 Tips on filtering out which pairs to concentrate on and why
02:35 The right setup for your trade plan
03:46 Trading in the direction of daily trade analysis
I want to explain which currency pairs I trade and on which time frames and why. So let me explain more right now.
Hi traders it’s Andrew Mitchem here The Forex Trading Coach and today is Friday, the 8th of August.
I’ve received an email that I’ve printed out here from Ahmer who follows me on my website and also on my daily posts on the FOREX Peace Army review site.
The question says, “Andrew, you know I’ve been following you for quite a while now; understanding how you trade. Can you make a video explaining about the currency pairs that you trade and why”.
Because Ahmer is saying that he finds that he’s paying some large spreads on some of the cross pairs and exotics and so he’d likes some information and tips about filtering out which pairs to concentrate on and why. So thank you for that question Ahmer.
So for me in general if I’m trading the longer time frame charts (so I’m talking: the monthly charts, the weekly charts, the daily charts), it doesn’t really matter which currency pair I’m trading because the stop loss and the profit targets are usually very large on those pairs because of the longer time frame nature of the trades. Therefore really the spread doesn’t become an issue.
Selecting Currency Pairs
If you’re looking at let’s say for example the British Pound/New Zealand Dollar (GBP/NZD) which can have sometimes a higher spread. Let’s say the spread is 6-7 pips, well, that’s absolutely fine and it doesn’t affect my trade. If the profit target happens to be 150, 250, 300 pips wherever it might be base on the time frame of the chart I’m trading. So therefore, the spread that you pay is such an insignificant amount because the profit target you’re looking at is such a large amount.
However I wouldn’t be looking at trading, let’s say, the British Pound/New Zealand Dollar (GBP/NZD) if the spread was let’s say 7 pips on a 5-minute chart trade and the profit target may happen to be somewhere 15, 20, 30 pips whatever it might be. So when you trade the shorter time frame charts you need to be quite selective in which currency pairs you’re selecting to trade; you’re choosing to trade. Of course it still needs to have other reasons why you’re taking those trades such as the actual setup you’re looking for whether it’s a chart pattern or indicators or fundamentals whatever it is that you’re using you still need to have the right setup for your trade plan, you still need to be able to get the reward out of the trade so the risk to reward ratio of the trade so all of that still needs to be factored in. So generally the shorter the time frame that you trade generally the smaller the stop loss and generally the smaller the profit target on the trade. Therefore the spread whatever the spread amount is, it becomes a bigger and bigger proportion of that trade so that’s why on the longer time frame charts really it doesn’t matter to me. I’m just looking at the right technical setup base on everything that I’m looking for within my own trading patterns regardless of the currency pair itself.
When it comes to the next time frames down like the 12-hour, the 6-hour or 4-hour charts, again, the spread on most of those trades is quite an insignificant amount due to the bigger ranges of those longer time frame charts.
When it comes to anything shorter than that from my own trading of a 1-hour chart or below then I prefer to be trading in the direction of my daily trade analysis. So if for example today being Friday I’m looking for short positions on the Australian/U.S., the Australian/Yen there is some Aussie news announcement in a few hours from now but right now I can see that the Aussie weakness from the employment data like yesterday which is bad for Australia is likely to continue – the technicals and the fundamentals are suggesting the Aussie Dollars looking to weaken today being Friday. So that means that if I’m trading the 1-hour chart below, I’m preferring to look for short positions. If the news announcements comes out and goes completely bullish then that doesn’t really affect me. It just means that I’m not likely to see many sales setups therefore I just don’t take any trades on those shorter time frame charts and when it comes down to those shorter time frames again so 15-minute and less than that so 15-minute charts, 5-minute charts or even 1-minute charts.
Realistically it is to going to be those major pairs which are dominated by the U.S Dollars. So the Euro/U.S., the Pound/U.S. the U.S. Franc, Aussie/U.S. etc., and some are the Yen pairs as well like the Euro/Yen, the Aussie/Yen. You’re looking for currency pairs that not only have the candle patterns, not only in the direction of your longer term view but also those that have spreads of let’s say 2 pips or below.
You really wouldn’t want to be trading a pair that has let’s say 4 or 5 pips spread if you’re trading on a 5-minute chart for example. Because again all you’re doing is paying your broker so much as a percentage of your trade. So it does become significant the shorter the time frame that you’re trading.