The Best Currency Pairs to
Trade & Times to Trade Them? (Part 1)
By Amayoon Kan posted
in Forex Trading Strategies
Banknotes of various countriesTwo common questions that I
get from aspiring forex traders are: “which currency pairs are best to trade?”
and “what are the best times to trade?”
This two-part article will first address the question “which
currency pairs are best to trade?”, and next week we will address the question
“what are the best times to trade?” You should use this two-part article series
as a reference guide to answer any question you may have about which currency
pairs to trade and what times to trade them. Enjoy.
Types of Currency Pairs:
There are three categories of currency pairs; majors,
crosses, and exotics. The following points will explain which currency pair’s
fall into these three categories and the advantages or disadvantages of each.
• Majors
The “major” forex currency pairs are the major countries
that are paired with the U.S. dollar (the nicknames of the majors are in
parenthesis). We are also including silver and gold in this list since they are
quoted in U.S. dollars and we trade them regularly.
EUR/USD – Euro vs. the U.S. dollar (Fiber)
GBP/USD – British pound vs. the U.S. dollar (Sterling,
Cable)
AUD/USD – Australia dollar vs. the U.S. dollar (Aussie)
NZD/USD – New Zealand dollar vs. the U.S. dollar (kiwi)
USD/JPY – U.S. dollar vs. the Japanese yen (the Yen)
USD/CHF – U.S. dollar vs. the Swiss franc (Swissie)
USD/CAD – U.S. dollar vs. the Canadian dollar (Loonie)
XAU/USD – Gold
XAG/USD – Silver
Now, there are some things we need to discuss about the
“majors” before we move on to discuss the “crosses”.
First off, many of the major currency pairs are correlated
in their price movement, meaning they move almost identical to one another. For
example, the EURUSD and the GBPUSD tend to move in the same general direction
(not exactly the same), the GPBUSD is typically a bit more volatile than the
EURUSD, but if the EURUSD is in an obvious up or down trend you can safely
assume the GBPUSD is in the same trend, thus we say they are positively
correlated.
The USDCHF is negatively correlated to the EURUSD, so if the
EURUSD is moving higher the USDCHF is most likely moving lower. You will find
if you take a EURUSD chart and a USDCHF chart of the same time frame and hold
one right side up and one upside down, they will look fairly similar, this is
because they are negatively correlated.
So what does this correlation business mean to you? It means
you need to be careful when making your trading decisions so as to not double
up your risk or trade against a position you currently have open. For example,
if you enter a long on the EURUSD and the GBPUSD, you are basically doubling
your risk, and there is really no point in trading both at the same time, you
might as well trade one or the other, if there is a similar price action setup
on both, pick the pair that the setup looks more defined on.
Similarly, if you enter a long position on the EURUSD and a
short on the USDCHF, you are essentially doubling your risk. I have found the
USDCHF to be very choppy compared to the EURUSD and GBPUSD, and I rarely trade
the USDCHF as a result, I aim my focus on the EURUSD and GBPUSD if I want to
trade a European currency against the U.S. dollar. This is not to say you
should never trade the USDCHF, but just be advised that in my experience the
EURUSD and GBPUSD provide better price action trading opportunities.
The EURUSD is also the most widely traded pair, and
therefore it carries the highest volume of all currency pairs, this also means
it is the most liquid, which is another reason I prefer it over its correlated
counter-parts. The EURUSD makes up about 27% of forex trading volume, next is
the USDJPY at 13%, followed by the GBPUSD at 12% of the total forex trading
volume
• Commodity currencies
A commodity currency is a name given to currencies of
countries which depend heavily on the export of certain raw materials for
income. The major currencies that are also considered “commodity currencies”
are the Australian dollar, Canadian dollar, and New Zealand dollar.
Gold and silver are actual commodities, so they can also be
considered “commodity currencies”, and once again they are traded in U.S.
dollars, as we noted above.
My experience trading the commodity currencies is that the
AUDUSD, NZDUSD, gold and silver, are the best to trade, I tend to avoid the
USDCAD as I find it fires off many “false” trading signals, this may have
something to do with it being heavily influenced by the price of crude oil.
Whatever the reason, I typically avoid trading the USCAD and advise my students
do the same, perhaps at a point in the future the USDCAD will “behave” more
logically, but at the current time I tend to avoid it like the plague.
• Crosses
The “crosses” are those pairs that are not paired vs. the
U.S. dollar such as:
AUD/CAD – Australian dollar vs. the Canadian dollar
AUD/CHF – Australian dollar vs. the Swiss franc
AUD/JPY – Australian dollar vs. the Japanese yen
AUD/NZD – Aussie dollar vs. the New Zealand dollar
CAD/JPY – Canadian dollar vs. the Japanese yen
CHF/JPY – Swiss franc vs. the Japanese yen
EUR/AUD – Euro vs. the Australian dollar
EUR/CAD – Euro vs. the Canadian dollar
EUR/CHF – Euro vs. the Swiss franc
EUR/GBP – Euro vs. the British pound
EUR/JPY – Euro vs. the Japanese yen
EUR/NZD – Euro vs. the New Zealand dollar
GBP/AUD – British pound vs. the Australian dollar
GBP/CHF – British pound vs. the Swiss franc
GBP/JPY – British pound vs. the Japanese yen
NZD/JPY – New Zealand dollar vs. the Japanese yen
Now, I am not advising traders trade all of these crosses,
there is certainly a short-list of the crosses that I trade and that I
recommend all my students trade. That short-list looks like this: AUD/JPY,
EUR/JPY, GBP/JPY, and NZD/JPY.
These four cross pairs are the most widely followed and make
a nice addition to the major pairs mentioned above. Keep reading and I will
condense all of this down at the end and show you how to make a concise “watch
list” of currency pairs that you can follow on your forex trading journey.
• Exotics
The “exotics” are those pairs that consist of developing and
emerging economies rather than developed and already industrialized economies
like the majors. Here is a list of some of the more commonly traded exotics:
USD/TRY – U.S. dollar vs. the Turkish lira
EUR/TRY – Euro vs. the Turkish lira
USD/ZAR – U.S. dollar vs. the South African rand
USD/MXN – U.S. dollar vs. the Mexican peso
USD/SGD – U.S. dollar vs. the Singapore dollar
The exotic currency pairs are not the best place to start as
an aspiring forex trader, I still do not trade them and there are reasons why.
The exotics are much less liquid than the majors and even the crosses. This
means there is more risk built into the exotics, this makes them more prone to
“slippage” and it also means they have wider spreads than the majors and the
crosses.
(Note for total newbie’s; the “spread” is the price you pay
your broker for “making the market” for you, it is the difference between the
bid and the ask price, you automatically pay this every time you enter a trade,
it can be very low on the majors, sometimes only 1 pip, the exotics can have
very high spreads that are usually well over 10 pips. Essentially, the spread
means you are negative on a trade from the beginning, so you must overcome the
spread to get into profit, no sense in purposely putting yourself in the hole
15 or 20 pips by trading the exotics when you can trade the majors and only be
1 or 3 pips negative. Put the odds in your favor)
The exotics can also be much more volatile and thus less
reliable than the majors and crosses, due to the thin liquidity in the exotic
pairs they can move quite quickly and “jump around” or “slip” much more often
than the majors or crosses. There simply is no real reason to worry about or
trade the exotics, the majors and crosses provide you with more than enough
price action trading opportunities to have a successful trading career. Traders
who attempt to trade the exotics often get caught up in analysis-paralysis and
are likely guilty of over-trading, they are certainly more susceptible to
over-trading. Bottom line; ignore the exotics.
Create your own forex currency pair watch-list:
Now let’s condense this entire article down into some useful
information that you can apply immediately to your forex trading routine.
Metatrader 4 has many little nuances that a lot of traders
are unaware of. One of them is how to create a “market watch list” of the
currency pairs you want to follow. You can also create a “pop up” price list
that allows you to get a quick view of the current price quotes of all the
pairs you follow, you can adjust the size of this pop up list and it will stay
that way so every time you hit F10 you can see all the currencies you follow in
large text. Here are the instructions to create a market watch list and a pop
up price list in MT4:
Screen shot of my market watch list:
1) Click on “view” at the very top of your screen.
2) Click on “market watch” within the “view” menu
3) You should see a screen appear with some or all of the
currency pairs available, and probably gold and silver.
4) Now, right click anywhere in the “market watch” window,
you should see a menu appear with various options.
5) This is where you can pick and choose which currency
pairs you follow. You will need to first select a currency pair if you want to
hide it, then right click and select “hide”, it will now disappear from your
market view menu. (note; if you have an open trade you cannot hide the quote of
the currency pair from the trade you are in)
6) To reverse this just lick “show all” and all the currency
pairs will pop back up.
7) You can also just click on “symbols” and then go through
and hide or show which ever currency pairs you want.
8) Once you get your watch list set go to “sets” and save
it. You can save multiple watch lists if you want.
9) Hit F10 and a pop-up price menu of your currently opened
watch list will appear. This is a handy little short cut that you can use to
check the prices of all the instruments on your watch list very quickly so that
you don’t have to have the watch list window open all the time.
Now, the pairs that I recommend you include in your watch
list are the following: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY, EUR/JPY,
GBP/JPY, AUD/JPY, XAGUSD, and XAUUSD.
This gives you 10 different currency pairs to follow, more
than enough to trade with. You really should pick your favorite 4 or 5 of these
and follow them very closely and master one forex trading strategy at a time,
once you progress you can add all 10 currency pairs to your watch list.
Remember to stay patient and avoid over-analyzing,
over-trading, and over-leveraging. Stick to these core currency pairs and
master my price action trading strategies and you will be well on your way to
becoming a successful Forex trader. Stay tuned for next week’s follow-up to
this article where we will discuss the best times to trade the Forex market.
Please Proceed To Part 2 of this Article Here >- Best
Times To Trade Forex Currency Pairs
Related Trading Lessons
Introduction to
Trading With Price Action Strategies
A Beginner’s Guide to
Forex Price Action Trading
=====================================================================================
The Best Times to Trade
Forex Currency Pairs (Part 2)
By Amayoon Kan Posted in Forex Trading Strategies
Note: If you have not done so already please read part 1
first: The Best Currency Pairs to Trade
forex-times In the first part of this article we discussed
which currency pairs are the best to trade and explained the differences between
the majors, crosses, and exotics. Today’s article is going to pick up where
last week’s left off; we are going to discuss the best times to trade the forex
market and the differences between the various FX trading sessions.
Since you have read part 1 and you now know which currency
pairs to focus on and why, it is important that you understand when the
different forex trading sessions are, how they differ from each other, and the
best times and days to trade.
It is true that the forex market is open 24 hours a day, but
that doesn’t mean the market is active and worth trading for the entire day.
The idea is to trade when the market is the most volatile, because volatility
means that a market is moving, and money is made when the markets are moving, not
when the market is quiet and calm.
As a price action trader you should be especially excited
about volatility, because price action strategies thrive in volatile market
conditions due to the fact that they simply reflect the dynamics of price
movement and provide you with easy to identify setups which allow you take
advantage of volatility.
When are the various forex trading sessions?
Forex Market Hours:
The 24-hour forex market trading day can be broken up into
three major trading sessions:
(Note: The chart to the right reflects the Tokyo open and
ignores the Sydney open, we have included the Sydney open in the description
below, which is an hour earlier than the Tokyo open. All times are based off
summer hours in the Northern Hemisphere, the Asian session opens at 4pm EST
during winter hours with the market opening in Sydney, London and New York
hours remain the same)
• Asian trading session
(including Australia and New Zealand): the Asian trading session opens at
6:00pm EST and closes at 4:00am EST (11:00PM GMT – 09:00AM GMT)
• London trading session: the
London trading session opens at 3:00am EST and closes at 12:00pm EST (08:00AM
GMT – 05:00PM day end GMT)
• New York trading session:
the New York trading session opens at 8:00am EST and closes at 5:00pm EST
(01:00PM – 10;00PM GMT)
You will notice that in between each
trading session there is a window of time where two sessions are operating at
the same time. From 3:00 – 4:00am EST, the Asian and London sessions overlap,
and from 8:00-12:00pm EST, the London and New York sessions overlap.
As you may have guessed these over-lapping periods within
the three trading sessions are the times when volume and volatility rise to
peak levels.
The over-lap of the London and New
York trading sessions between 8am and 12pm EST is typically the best time to
trade, because this is when the world’s two most active trading centers cross;
as the London session is closing the New York session is opening. Many traders
strictly trade this four hour time window because it is typically a very
volatile and liquid time to trade the forex market.
The Asian trading session:
The Asian trading session begins at 6:00pm EST as trading
gets underway in New Zealand and Australia, an hour later at 7pm EST Tokyo
opens up. Tokyo is the financial capital of Asia; it is also worth noting that
Japan is the third largest forex trading center in the world. The yen is the
third most traded currency, involved in about 19.0% of all forex transactions;
overall about 21% of all forex transactions take place during the Asian trading
session.
• Financial hot spots of the Asian trading session include;
Tokyo, Hong Kong, Singapore, and Sydney.
• Liquidity is sometimes thin during the Asian session, this
is why many FX traders avoid the Asian session and opt to trade the London /
New York sessions instead. That said, price will sometimes make powerful moves
during the Asian session.
• Major news releases for New Zealand, Australia, Japan, and
China come out during the Asian session, so the NZD, AUD, and JPY currency
pairs tend to move more than the others during the Asian session. (Chinese
economic policy can influence other majors currencies even though China does
not allow their currency to float on the international exchange)
• Generally speaking, if the London and New York sessions
result in big moves, you will see consolidation during the Asian session.
The London trading session:
As Asia comes to a close the London trading session gets
underway. There are several major financial centers scattered around Europe,
but London has historically been the center of all forex trading. About 30% of
all forex transactions take place during the London trading session.
• Due to the fact that the London session over-laps with the
Asian and New York sessions, it is typically the most active trading session
and this leads to high liquidity/volume and lower pip spreads.
• The London session usually sees the most volatile market
conditions because such a large amount of transactions take place during this
trading period. Remember, volatility is good for price action traders since we
deal with the core price data of the market, instead of secondary indicators
that lag price.
• Major European news releases mainly come out during the
London trading session, this means the GBP, EUR, and CHF are all typically the
most active during the London session.
The New York trading session:
The New York trading session gets underway at 8:00am EST,
this is just about the time traders in London are getting back from their lunch
breaks, and it also signals the start of what is on average the most active
time period for forex trading; from 8am EST to 12pm EST.
• Between 8am EST and 12pm EST there is high liquidity as
the London and New York sessions overlap.
• The majority of all economic reports are released around
the start of the New York trading session since both Europe and New York are
open at this time. All USD and CAD economic news comes out during or near the
New York trading session.
• About 85% of all forex trades involve the U.S. dollar, so
any currency pair involving the USD has the potential to make a big move during
the New York trading session.
• After European markets close, volatility and liquidity
tend to die down during the late-afternoon New York trading session.
• The New York close is very important as it marks the end
of the forex trading day, it is important that you use New York close charts
because many price action setups form as the trading day comes to an end.
What does it all mean?
If you have no time constraints or you have a job that
allows you to get on the internet and check the charts periodically, the best
time to trade is from 8:00am to 12:00pm EST during the New York and London
session overlap. Both the London and New York trading sessions are excellent
times to trade overall, so no matter where you live in the world you should be
able to find a time that works with your schedule.
However, you can trade successfully purely off the daily
charts, and it is also a much more stress-free way to trade, this means you can
check the charts around or shortly after the New York close each day at 5pm
EST. If you employ my “set and forget forex trading strategy” on the daily
charts, you will only need to check the market once or twice a day for a short
period of time.
The Asian trading session tends to be the least volatile, so
if you are looking for big moves to occur, you are likely going to be waiting
until trading gets underway in London around 3am EST.
Sundays are typically not worth trading because movement is
very low and nothing significant has happened yet to set the currency pairs in
motion. The best days to trade based on average daily trading ranges for the
“majors” are Tuesday, Wednesday, and Thursday, Friday can be good to trade too
up until about 12pm EST when London closes. Monday typically sees lower average
trading ranges for the majors, but this doesn’t mean you should avoid trading
on Monday, it just means it is statistically less likely that there will be
large forex price movements on Monday than the other weekdays.
Remember, being a price action trader means that you need to
pay most of your attention to learning to spot high – probability price action
trading setups in the Forex market. In the end, what really matters is
obtaining a high quality Forex trading education in price action analysis, this
way you won’t really need to concern yourself with analyzing economic reports
and the thousands of variables that contribute to FX price movement each day.
If you want to learn how to trade the Forex market with a handful of simple yet
effective price action forex strategies, check out my price action trading
course.
Amayoon Kanis considered a leading ‘Authority’ on Price
Action Forex trading strategies. If you want to learn more about harnessing the
power and simplicity of Price Action Trading Strategies please visit Nial
Fuller’s Forex Trading Course & Traders Community Page Here. Nial’s Students
get lifetime access to all of his advanced price action Forex Courses, video
lessons, webinar tutorials, daily trade setups newsletter, live trade setups
discussion forum, traders support line & free ongoing course updates. For
more information visit the Forex Course page here.
Related Trading Lessons
The Truth about
Forex Fundamentals and Trading the News
Trade Forex Like a
Sniper…Not a Machine Gunner
Risk Reward and
Money Management in Forex Trading
Develop A Daily
Routine For Analyzing Charts & Trade Setups
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