How Many Currency Pairs Should You Trade?
Let’s talk about:
Advantages of Marrying One Currency Pair
Problems Associated With Specializing in One Pair
Trading Multiple Currency Pairs for Diversification
If you are trading only one currency pair, there are some advantages. The aim is to become familiar with its nuances so that it becomes easy to predict its moves and “understand its news”. In this way one has the edge from having a fair idea of the likely price direction ahead of time. If the currency pair you decide to marry is trending in one direction, up or down, it is possible to trade with the trend, and the trend becomes your friend for as long as it lasts. Trading only one currency pair allows the trader to concentrate all time and effort in one place, so there is less distraction. If you are using for example a low time frame scalping method, trading only one currency pair allows you to focus well. Imagine using a 1 minute time frame scalping method to trade multiple pairs.
But what if both currencies in the pair suddenly become very strong when compared to each other? Trades which were previously possible from the technical analysis related to strong trending markets begin to disappear. The same is true if both currencies in the pair become weak in comparison to each other. In addition, many traders are not in favour of trading a single pair because the number of trades which they can get into becomes significantly reduced. This makes them feel that by not getting into available trades from other currency pairs they are missing trading opportunities and leaving money on the table.
Consolidation is an issue faced by single currency pair traders. Suppose that currency pair adopts a pattern of consolidation within a tight range of only a few pips over a number of days, weeks or even months? Where would the trading opportunities come from? Well, in fact there would not be a lot of low risk tradingprospects and this might leave you being a very frustrated trader.
This takes us to the idea of trading multiple currency pairs. By diversifying your trading portfolio, this allows you to be able to scan numerous currency pairs to find trading setups with promise the highest probability for possible winning trades. One advantage of trading multiple currency pairs is the ability to make the most of currency correlations. Here you may trade the two or more currency pairs which are correlated to increase your odds of being successful. Then there is the advantage of being able to apply different trading strategies based upon the technical or fundamental analysis applicable to particular currency pairs. A third advantage of trading multiple pairs is being able to pair currencies based upon their relative strength. If currency A is strong and currency B is relatively weak, then there will be a buy bias towards the AB currency pair, given that there is sufficient volatility. The trader is then able to search across many currencies and pair them along relative strength versus weakness criteria for increased trading options.
When it comes to deciding whether or not to stick to one currency pair, there are pros and cons. Sometimes making the decision really depends on the trading style and expertise of traders, and the level of exposure of capital they are able to commit to.
Pleas feel free to click here for more articles
Written by Ferl Ngningone
FAQs
While there are many pairs you could trade for most traders, it is best to stick to one to five pairs and become an expert. There is always a temptation to change markets when making losses. Other forex pairs can appear to have stronger trends, higher volatility, and easier-to-make profits.
Should I trade multiple currency pairs? ›
There are two schools of thought when it comes to how many currency pairs one should trade. The first is to focus on one at a time. The idea is that by focusing all of your energy on that one pairing, you're more likely to develop a familiarity with it and thus stand a greater chance of profiting over time.
Is it good to trade only one currency pair? ›
Trading only one forex pair can limit your opportunities and expose you to unnecessary risk. Here are several reasons why diversifying your forex trading beyond just one pair is advisable: Market Volatility: Different currency pairs exhibit varying levels of volatility at different times.
How many pairs should a swing trader focus on? ›
Swing Trader, that trades on High Timeframes and needs setups? Watch and trade 20 pairs. Day Trader that is risky and has no problem losing 5-6% a day? Monitor and trade 3-5 pairs.
How many pairs should I trade as a day trader? ›
If you are very active during the trading day going in and out multiple times, then sticking to 2-3 pairs can be a good idea. It really depends on your trading style I think. I monitor around 10 pairs on the slower charts such as daily and weekly and I follow USD/CHF, USD/CAD and EUR/JPY closely during the day.
What is the best time to trade currency pairs? ›
The best forex trading time in India is 9.00 am to 3.30 pm, with cross-currency trade continuing until 7.30 pm However, India's currency market hours aren't always consistent in terms of liquidity and variability. Due to overlapping trade sessions around the world, they differ.
What pairs move 100 pips a day? ›
The AUD/JPY, AUD/USD, CAD/JPY, NZD/JPY, GBP/AUD, USD/MXN, USD/TRY, and USD/ZAR move the most pips daily but are not the most liquid currency pairs. Among highly liquid currency pairs, the EUR/USD and the GBP/USD move between 70 to 120 pips daily, followed by the USD/CHF and the USD/JPY.
Which currency pair is most predictable? ›
The top five predictable currency pairs include AUD/USD, USD/JPY, USD/CAD, NZD/USD, and EUR/USD. Each of these pairs demonstrates reliable market behavior, providing traders with valuable opportunities.
Which trading is best for beginners? ›
Day trading can be a bear fruits for beginners who are willing to put in the time and effort to learn the markets and develop their trading skills.
What is the 2% rule in swing trading? ›
The 2% rule is a restriction that investors impose on their trading activities in order to stay within specified risk management parameters. For example, an investor who uses the 2% rule and has a $100,000 trading account, risks no more than $2,000–or 2% of the value of the account–on a particular investment.
Bottom Line. The Swing Trading strategy can lead to profits in the short term, usually in the range of 10% to 30%. However, as most things investing usually are, it is a risky bet. About 90% of traders report losses during trading.
How to pick currency pairs to trade? ›
Before selecting a forex pair, the trader should establish their trading goals. Their goals will influence their choice of pairs, such as whether they aim for short-term gains, long-term stability, or a combination of both. For instance, they may prefer less volatile major pairs if their goal is capital preservation.
Is it good to have multiple currencies? ›
A multicurrency account can be an easy way to avoid currency conversions every time you make a transaction. This removes the uncertainty in cost from constant exchange rate fluctuations.
How many forex pairs should you focus on? ›
While there are many pairs you could trade for most traders, it is best to stick to one to five pairs and become an expert. There is always a temptation to change markets when making losses. Other forex pairs can appear to have stronger trends, higher volatility, and easier-to-make profits.
Is it better to trade indices or currency pairs? ›
It depends on several factors, but most beginners tend to get exposure to indices at the start of their journey as forex is more suited for experienced traders. This is because the indices market follows the direction of stocks closely, making it slightly predictive of how the index will move in the future.
