Currency Exchange vs Currency Pair Trading
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There are many complicated choices a forex trader makes while refining their strategy and approach. One of the most important decisions to make is what currencies follow and trade. This article is not meant to touch on basics like Majors, ComDolls, and Exotics.
Trading multiple currency pairs does assume that you already have a basic, working knowledge of these pairs. Instead, let's dive into methodology, pros, and cons of different choices. Did you develop your own trading strategy or are you using one of the many that are freely available on the internet?
Knowledgeable traders may find that developing their own trading strategy using instruments they are comfortable with is the better choice for them. I believe that inexperienced traders are far better off using an already developed strategy, learning the components of that strategy, and mastering them. Most of us will never be Soros or Buffet. We are not reinventing the wheel here, particularly if you just heard about trading multiple currency pairs forex thing and are trading multiple currency pairs it yourself.
A trader that develops their own strategy is probably going to have the pair or pairs in mind that they are going to trade. A person that picks up a third party strategy should pay close attention to what the author and users of that strategy trades. There are particular nuances to different currency pairs that cause them to be a trading multiple currency pairs favourable environment for certain strategies.
Trading multiple currency pairs all strategies can function well for trading multiple currency pairs currency pairs. If you're struggling to find success, it may be a compatibility issue between the strategy and currency pair s you are attempting to trade. A single pair strategy allows the trader to really hone their understanding of the movements of that pair and the economies that fuels it.
It is much easier to follow and attempt to understand the fundamental factors of a single currency pair. Selecting a single currency, as opposed to a single pair, still requires a significant time and energy investment to understand the other half of the related currency pairs.
Developing a deep understanding of a currency pair gives the trader a greater insight into what are they observing over time. That insight may provide an additional edge in picking winning trades out of the noisy quagmire that we try to find opportunity in. A major con of a single pair strategy is the amount of limited opportunities. A part-time trader who is working full-time while trying to master forex is better suited to studying a limited number of currencies given time constraints and the responsibilities of life.
A long-term, single pair strategy makes more sense for this type of trader. On the other hand, a scalper may not want to limit themselves to only one currency pair worth of opportunities. The scalper needs to dedicate more focused time to their art if they want to find long-term success with it. Scalpers may make dozens of trades in the course of their day. They will not typically limit themselves to one pair so as to maximize the number of potential trades.
Should you want to focus on a single pair, a pair that includes your home nation's currency is a good choice. They provide trading multiple currency pairs signals trading multiple currency pairs of the large amount of people trading them. A handful of pairs may be appropriate for the trader that wants some diversity.
It is a wise idea to not have a single, unifying currency in each pair. Avoid picking correlative or inversely correlative pairs. Correlative pairs are those that tend to show similar signals with similar movements due to the closeness of the respective economies.
The Euro and the Pound share many similarities in price movements given the economics of the regions. They tend to head in opposite directions for much the same reason. The position of the USD on these pairs is why they are inversely correlated. It is better to put a single trade on a strong signal of one pair than it is to trading multiple currency pairs two trades on two different signals in correlative pairs.
The trader is essentially doubling their risk for the same trading multiple currency pairs of gain, which is not smart risk management. This option may be good for traders that use a highly trading multiple currency pairs approach to analysis. The fact of the matter is, you're going to need a lot of time to keep up with the fundamentals of a dozen different pairs even if they do share similar currencies.
Both pairs will throw off similar signals, but choosing the best signal is going to require some working knowledge of the fundamental factors of both Britain and the Euro zone. Perhaps the trader uses technical analysis almost exclusively. Their indicators will be painting the picture for them. On the other hand, technical indicators do not lend much insight into what is coming tomorrow on the fundamental side.
They are simply an interpretation of what the pair's price action has already done. Does the trader dive straight into a trade without any fundamental analysis even if the technicals look good? Scalpers that trading multiple currency pairs multiple currencies still have an overall trading multiple currency pairs of fundamental factors that may be affecting their currency pairs. That knowledge may be as basic as knowing when open market overlaps or major news events would create the push and pull needed to generate profit.
The right choice for you is going to come down to your strategy and how much time you can invest in learning your chosen pairs. Trading multiple currency pairs am not of the opinion that a fully technical approach is possible to reach profitability. Fundamentals are always a factor because trading multiple currency pairs are the events that cause people to take action and create the technical signals we see.
Learning the fundamentals of one or a handful of currencies, even if you follow multiple pairs including that currency, seems like the better way to gain a winning edge in the markets. There are authors of strategies that claim they can be used on any pair. That may technically be true, but that does not account for the efficiency that strategy may have on a given pair.
Going in for 5 or 10 pips is almost a fool's errand because there's no way to cut your stops tight enough to come out ahead. Be certain to research your choice thoroughly and take the time to learn at least some of the basics of the currency.
Personally, I keep a separate email account with alerts set to message me news surrounding the Federal Reserve, Bank of Japan, European Central Bank, important economic events, and the big names in the financial trading multiple currency pairs. Anyone can do the same with their own choices to provide themselves a platform of potential information for fundamental analysis.
If you intend to specialize, choose currency pairs that can provide consistency. Look to the Majors or ComDolls for consistency. Don't have an account? Dennis Hall Dennis is a part-time private forex trader who is based in the US. He has built up a vast knowledge of currency trading through reading and testing out strategies in live trading environments using very small sums. This enabled him to develop his own specific trading style that minimizes risk and maximizes gains.
MahiFX does not provide investment advice or recommendations, and no material on this site should be construed as such. Opinions are those of trading multiple currency pairs authors and not necessarily those of MahiFX, its officers or directors. Leveraged trading is high risk and not trading multiple currency pairs for all. You could lose some or all of your deposited funds.