Last Updated on August 31, 2020 by Jason Wilson
WHAT ARE THE CURRENCY PAIRS EVERY BEGINNER SHOULD TRADE?
There are a multitude of currency pairs available to Forex traders. Unfortunately, many beginners make the mistake of choosing the wrong ones when venturing into the market for the first time. If you are a Forex beginner, it is much easier to start off by trading the major currency pairs, such as the EUR/USD, USD/JPY, and the GBP/USD, rather than the myriad of minor currency pairs that are available. Here are several reasons why these are often considered the best currency pairs to trade, especially for Forex novices:
– The currency cross pairs are the most widely traded pairs, which makes them extremely liquid with the volatility needed to conduct profitable trades every day.
– They have extremely tight spreads. For instance, most brokers only have a one or two pip spread for the EUR/USD. However, most Forex brokers place a higher spread for the GBP/USD, due to the much higher volatility of this currency pair.
– All of these currency pairs involve the USD and are actively traded during the New York session, which takes place from 8:00 am to 4:00 pm EST. This is the most active trading session and regularly has the highest volume of trades.
– There are numerous trading systems that have been developed specifically for trading these pairs. Many of these trading strategies and systems can be found online for free.
Now that you know what the best currency pairs are for beginner traders, next it is necessary to know which ones should be avoided. Every serious trader agrees that trading exotic currency pairs requires advanced knowledge of the market. Novice traders should only focus on trading the following list of major currencies and avoid any others until they have proven that they can trade these profitably:
- US Dollar (USD)
- Euro (EUR)
- Japanese Yen (JPY)
- British Pound (GBP)
- Australian Dollar (AUD)
- Swiss Franc (CHF)
- Canadian Dollar (CAD)
It is important to note that only pairs containing two of these currencies should be traded by novice traders. If one of these currencies is paired with an exotic currency, then it should not be traded.
It is also important for novice traders to avoid trading currency pairs that have high spreads. Typically, the major currency pairs listed above have much lower spreads than exotic pairs. Most of the time, currency pairs with high spreads are much more volatile, causing price spikes and wide price changes that are difficult for beginner traders to execute profitable trades. Although spreads vary by broker, the spreads employed by a broker can easily be found on their website or on their online trading platform. Most traders typically just subtract the Bid price form the Ask price, both of which can be found on the Bid/Ask table.
All too often, beginner traders make the mistake of trying to monitor and trade too many currency pairs at one time. In addition to making trading complicated and difficult to handle, this also makes it difficult to gain in-depth knowledge of each currency pair and learn the unique behavior of each.
Every currency pair moves in a unique way, forms trends, and reacts to political and economic events. Therefore, it is necessary for novice traders to study one currency pair at a time so that they can observe its behaviour and learn the most effective way of trading the pair.
THE MACD AND MOVING AVERAGE METHOD FOR TRADING THE EUR/USD
The EUR/USD is well-known as a trending currency pair, especially during the morning hours of the New York session, making it perfect for implementing this short-term trading strategy utilizing the 15-minute chart.
This proven strategy requires the use of the following technical indicators:
- Two-period exponential moving average
- Five-period exponential moving average
- Ten-period exponential moving average
Some traders prefer to use a custom MACD indicator that features bars that change colour when a change in price direction occurs. However, this is not necessary, because a standard MACD makes these changes quite clear and can allow traders to spot the change in time to prevent a lag.
Long Entry Rules:
When going long on a trade, you simply need to identify the point in which the two-period EMA begins to cross over the long-term EMA’s. A buy order should be executed when the two-period EMA crosses above the five-period EMA, and also when both the two and five-period EMA’s cross upward over the ten-period EMA. The bars of the MACD indicator should also change from a downward position to an upward position at the same time as the EMA crossovers.
There are no predefined rules that govern the use of profit targets or a stop loss as these can be executed at your discretion. However, since this system is designed to be implemented on a 15-minute chart, the trade outlook is very short. Therefore, it is recommended that profit targets be set to no greater than 30 pips, and stop losses should be set around 15 pips for a risk/reward ratio of one to two.
Short Entry Rules:
When using this strategy for a short trade, the two-period EMA should cross downward over the five and ten-period EMA’s. Similar to a long entry, both the two-period and five-period EMA should also cross below the ten-period EMA. The bars of the MACD indicator should also go from an upward position to a downward position. This transition usually occurs gradually, giving you plenty of time to spot the impending price change and prepare for a trade.
Similar to a long entry, profit targets should be set for no more than 30 pips, and stops losses should also be placed around 15 pips. However, rather than setting a profit target, trailing stops can also be used to lock in profits and ride the trends that are commonplace with the EUR/USD.
When venturing into the Forex market for the first time, it is important to trade one of the major currency pairs, such as the EUR/USD. Pairs such as this have greater liquidity and provide plenty of safe trading opportunities. By utilizing the multiple EMA crossover and MACD system, you will be able to easily identify trade set ups on the EUR/USD and execute profitable, short-term trades. When used to trade the EUR/USD, this system has proven to be profitable for beginner traders time and time again.
As you know, the spread of a particular currency pair can greatly affect your potential profits. Since each broker offers different spreads, it is imperative to find a broker that offers the lowest spreads possible for each of the major currency pairs. Get your trading off to the best start possible by finding the right broker and utilising this EUR/USD trading system today.