The Best Currency Pairs to Trade & Times to Trade Them?

Two common questions that I get from aspiring forex traders are: “which currency pairs are best to trade?” and “what are the best times to trade?”

This two-part article will first address the question “which currency pairs are best to trade?”, and next week we will address the question “what are the best times to trade?” You should use this two-part article series as a reference guide to answer any question you may have about which currency pairs to trade and what times to trade them. Enjoy.

Types of Currency Pairs:

There are three categories of currency pairs; majors, crosses, and exotics. The following points will explain which currency pair’s fall into these three categories and the advantages or disadvantages of each.

• Majors

The “major” forex currency pairs are the major countries that are paired with the U.S. dollar (the nicknames of the majors are in parenthesis). We are also including silver and gold in this list since they are quoted in U.S. dollars and we trade them regularly.

EUR/USD – Euro vs. the U.S. dollar (Fiber)
GBP/USD – British pound vs. the U.S. dollar (Sterling, Cable)
AUD/USD – Australia dollar vs. the U.S. dollar (Aussie)
NZD/USD – New Zealand dollar vs. the U.S. dollar (kiwi)
USD/JPY – U.S. dollar vs. the Japanese yen (the Yen)
USD/CHF – U.S. dollar vs. the Swiss franc (Swissie)
USD/CAD – U.S. dollar vs. the Canadian dollar (Loonie)
XAU/USD – Gold
XAG/USD – Silver

Now, there are some things we need to discuss about the “majors” before we move on to discuss the “crosses”.

First off, many of the major currency pairs are correlated in their price movement, meaning they move almost identical to one another. For example, the EURUSD and the GBPUSD tend to move in the same general direction (not exactly the same), the GPBUSD is typically a bit more volatile than the EURUSD, but if the EURUSD is in an obvious up or down trend you can safely assume the GBPUSD is in the same trend, thus we say they are positively correlated.

The USDCHF is negatively correlated to the EURUSD, so if the EURUSD is moving higher the USDCHF is most likely moving lower. You will find if you take a EURUSD chart and a USDCHF chart of the same time frame and hold one right side up and one upside down, they will look fairly similar, this is because they are negatively correlated.

So what does this correlation business mean to you? It means you need to be careful when making your trading decisions so as to not double up your risk or trade against a position you currently have open. For example, if you enter a long on the EURUSD and the GBPUSD, you are basically doubling your risk, and there is really no point in trading both at the same time, you might as well trade one or the other, if there is a similar price action setup on both, pick the pair that the setup looks more defined on.

Similarly, if you enter a long position on the EURUSD and a short on the USDCHF, you are essentially doubling your risk. I have found the USDCHF to be very choppy compared to the EURUSD and GBPUSD, and I rarely trade the USDCHF as a result, I aim my focus on the EURUSD and GBPUSD if I want to trade a European currency against the U.S. dollar. This is not to say you should never trade the USDCHF, but just be advised that in my experience the EURUSD and GBPUSD provide better price action trading opportunities.

The EURUSD is also the most widely traded pair, and therefore it carries the highest volume of all currency pairs, this also means it is the most liquid, which is another reason I prefer it over its correlated counter-parts. The EURUSD makes up about 27% of forex trading volume, next is the USDJPY at 13%, followed by the GBPUSD at 12% of the total forex trading volume