Choosing the Best Currency Pairs
In Forex trading, to make a profit, you need to use the right tools, have a bit of knowledge, and you need to choose the best currency pairs too. Of course, Forex is all about betting that one currency will increase or decrease in value against another. Some currency pairs are more volatile and profitable than other, so what are the best currency pairs?
As a newbie trader, you may have a hard time finding the best currency pairs to trade with. No worries, because this is completely normal. Folks, finding the best currency pairs for Forex trading is not all that hard, especially if you follow the steps which we are about to outline here today. Let’s get right to it and help you find the best currency pairs for Forex trading.
Choosing the Best Currency Pairs: 3 Simple Steps
To find the best currency pairs for Forex trading, there are 3 simple steps which you need to follow, steps which we will outline right here and now.
Step 1: Correlation Between Forex & Gold
Something that many traders out there don’t talk about is that there is a really strong correlation between Forex and gold. Gold is a massive safe haven asset out there, which means that many investors and traders put their money into gold because it is relatively safe.
The fact of the matter is that there is a very close relationship between Forex currency pairs and gold, and yes, this is very important when it comes to choosing the best currency pairs for FX trading. What you need to do first here is to figure out whether the price of gold is going up or down for the given day.
Use your charts and indicators to figure out whether gold is going up or down. Now, once you have this figured out, you can then start trading certain currency pairs. There are various pairings which will always act a certain way when compared to the price of gold.
- Gold and the USD have a negative correlation, so when the price of gold goes up, the USD goes down.
- Gold and the AUD/USD pairing have a positive correlation, so when one goes up, so does the other.
- Gold and the NZD/USD pairing have a positive correlation, so when one goes up or down, the other does the same.
- Gold and the USD/CHF pairing have a negative correlation, so when one gold goes up, USD/CHF goes down.
- Gold and the USD/CAD pairing have a negative correlation, so when gold goes up, USD/CAD goes down.
- Gold and the EUR/USD pair have a positive correlation, so when gold goes one way, EUR/USD goes the same way.
Step 2: Correlated Forex Pairs
The next step to choosing the best pairs for Forex trading is to look for pairings that have opposite or negative correlations. This means that when one pairing moves one way, the other pairing will move the other.
The fact of the matter is that finding price directions and trends is easiest to do when you compare negatively correlated Forex pairs.
If you can find out which way one pairing is moving, it is then quite easy to see which way the negatively correlated pair will move. So, what are some of the best currency pairs which are negatively correlated?
- EUR/USD & USD/CHF
- GBP/USD & USD/JPY
- GBP/USD & USD/CHF
- AUD/USD & USD/CAD
- AUD/USD & USD/JPY
Step 3: Look for the Big Movers
The final step to finding the best pairs for Forex trading on a daily basis is to go look for the big movers, the currencies and pairings which are the most volatile and will see the biggest price movements. A great idea is to go to both investing.com and tradingview.com to find the biggest movers.
Tradingview.com is an especially good option to go with as these guys have a great Forex screener which displays currency pairings that are showing strong buy or strong sell positions. Once you figure out which currency pairs are the biggest movers, you can then start trading with them.
The Most Profitable Forex Currency Pairs
The fact of the matter is that there are great pairs to trade with, and there are ones which are not great. This is especially the case during a market downturn.
When it comes to a market downturn, you do want to stick to trading with currencies that are very volatile. If the currencies are not volatile, then there is not much point in trading them. So, what are some of the best currencies to trade with during a market downturn?
Well, there are 3 main currencies which are considered to be safe havens. These are currencies that do not do weird stuff or move in unpredictable ways. The fact of the matter is that you don’t want to trade exotic currencies because they won’t respect your indicators and are super unpredictable.
The best currency pairs for Forex trading are USD/CHF, USD/JPY, and EUR/USD. Another pair which is very reliable to trade with is XAU/USD (XAU is not actually a currency. It is the market abbreviation for gold).
Something else to think about here is correlation. It is important for you to know that the USD/CHF and the USD/JPY pairings have a positive correlation, so both usually move in the same direction. On the other hand, when the USD/CHF and USD/JPY does one thing, the EUR/USD pairing will move the other way, as they are negatively correlated.
The Best Currency Pairs for Forex – Final Thoughts
Remember people, when it comes to choosing the best currency pairs for Forex trading, there are 3 main steps to follow. First, always remember that certain currency pairs feature negative and positive correlations with gold. Second, remember that the best currency pairs to trade are those which feature negative correlations. Third, use trandingview.com and the Forex screener to look for the biggest movers. If you follow all of these steps, making a profit in the world of Forex should be much easier for you.