Choosing a currency pair to trade
One of the most important decision traders make is choosing a currency pair to trade. A lot of times traders will choose 4-5 pairs and start from there. For a disciplined trader, that’s not how it should be done.
When choosing a pair to trade, we have to keep in mind the time you are choosing to trade the market. Not all pairs have volume in all sessions. Generally it is often best practice to choose a pair that is open and has volume in a particular session. Lets take a look into the Session Specific currency pairs.
This session has the lowest volume out of all three sessions (Asian session, NY session, London Session). It is important to understand which major currencies are open at this point.
It is now safe to say that any ONE of these pairs would have decent volume at the Asian session. At the same time pairs like GBPJPY, EURJPY and USDJPY also have volume at this time since the pairs are ONLY being influenced by the JPY. In this case, all three GBP, EUR and USD are closed so the only currency moving the pairs is JPY.
In the case of AUDJPY and NZDJPY, these two pairs are influenced by both currencies. When this is the case, It is important to understand that the ONLY reason a pair which is influenced by both currencies, for it to have volume, we need one currency to be really weak and the other to be really strong. Consequently, if we want the pair to have volume, we need one currency to be really strong or really weak and the other one to be stable.
Trading pairs like EURUSD or USDCAD at the Asian session would not be good practice since all currencies are closed at this time, hence the reason we see them consolidate.
This is a volatile session. There are excellent oppurtunities to participate in really good trades at this session. The main currencies that are moving the market at this time are GBP, EUR and CHF. Generally we can see a lot of volume in pairs like GBPJPY, EURJPY, EURUSD and GBPUSD.
We can see that in the above mentioned currency pairs, all of them are being influenced by only ONE currency since that’s the only currency which is open at this time. If we look at EURGBP, we can see that the pair has two currencies which are open at the London session aswell. This means for EURGBP to move, we would want to see one currency really weak or really strong. If both currencies are weak or strong then there is a high chance for price to start ranging.
Trading something like USDJPY or USDCAD on 30min to 4h TF at this time would not be good practice since both currencies are closed at the London session time
New York Session
This session has the most volume out of all the market sessions. One big reason for is due to London session also open during this time, so that accounts for majority of the volume in the market as well.
When we come to NY Session pairs like GBPUSD and EURUSD start to get a little tricky to trade because not only the GBP is open at this time, but also EUR is open as well. So for these pairs to move, we would need one currency to be really weak and the other to be really strong and vice versa. It is really hard to find that balance so it gets a little tricky.
Pairs like GBPJPY, EURJPY, USDJPY, Gold and US30 are easier to trade since they are not only being influenced by one currency. It is the reason why at times GBPUSD and GBPJPY might not move exactly the same as they would in London session.
Market timings and what currencies are open during those times is really important to understand. This will increase your understand of currency pairs and when they have the most volume. Having more volume also means the spreads are better as well. So next time you choose a currency pair, make sure it is in session AND for best practice, it is only being influenced by ONE currency.
*This is not financial advice, this is for educational purposes ONLY.