There is no question there are abundant options in the currency market…
While a few major pairings are dominating the volume from many currency market traders, the importance of finding the top possible pairing to execute your strategy cannot be overemphasized. The major currency pairs can significant offer fast movements and volatility, they may not be the best pairs to voice a trader’s opinion with. If you are not familiar with the major currency pairs, you will find them detailed below:
These are the most well-liked currency pairs that Forex traders trade.
But are these the top pairings we should focus on?
Let’s look at an example 0f a currency pair
Let’s say that a trader expected strength in the British Pound, so they make a decision to buy GBPUSD. Let’s also say there is some good news coming out of the UK, which should link to British Pound strength, but the US Dollar sees even greater strength than the Sterling, and rather than moving higher like you thought, the pair moves lower.
So essentially you were correct, but you still lost on the trade because the US Dollar became stronger than the British Pound.
When traders decide to only trade the major currency pairs, it’s a bit like trying to put a square peg into a round hole.
Let’s look at the same scenario but from another angle
Same as above, you expected the British Pound to go up in value, so you want to buy Sterling. But rather than just blindly going out and buying GBPUSD you look for the most optimal pair to do it with. After some looking you discover that the Canadian Dollar has been very weak more than the US Dollar and you decide that you want to join what you think is a strong GRP with a weak Canadian Dollar. Let’s say you were wrong… and the British Pound didn’t see strength. However, as long as the CAD stays weaker than the British Pounds you will still win.
So, when you focus on the best optimal pairing, as the trader you stand the chance that you are wrong but you still win in the trade.
Because every currency pair involves two economies traded against each other, you will be best served by analyzing both economies focusing on matching a strong currency with a weak currency. Traders are looking to eliminate the cases of being right, but still losing, while you increase the chance of being wrong but still winning.
How you can separate the strong from the weak
Pair selection is a key tool of the FX trader; and so we have attempted to provide you with many resources to assist you with the analysis.
Strong-Weak analysis is a procedure that traders can use to look at, and grade a single currency for its strength/weakness against the other individual currencies. There are 2-ways you can do this analysis. The manual, which is the long way for doing the analysis requires you to have a charting package, a spreadsheet, and with some math skills you can build yourself a table.
A simpler way of doing this analysis is by using application from FXCMApps.com that have been recently launched. These monitor and grade currency strength/weakness based on 4 of the most well-liked time frames traders use.
The StrongWeak App is available from FXCMApps.com sells for just $99, but right now it is free with their latest promotion. The StrongWeak App automatically grades all seven currency’s strength/weakness over four of the most popular time frames. It then displays this data so that you can swiftly glance at the application to find the currencies which could be most agreeable for your goals.