A Currency Pair to Trade

currency pair for making a speculative trade, based on patriotic or geo- graphical reasons. I have noticed that many traders from Australia, for ex- ample, basically trade an AUD against USD or NZD. New Zealanders, Canadians, Frenchmen and traders from many other countries frequently prefer to trade their national currencies also. They trade it against the American dollar, or against other national currencies of neighboring coun- tries of the given geographical region. It seems to me, however, that our basic purpose of participation in this business is not to certify our patri- otic feelings and pride but to receive the greatest possible profit. From the point of view of a speculative trader, the patriotically geographical ap- proach to a choice of currency pairs for speculative operations on FOREX cannot be considered rational and justified. The choice of a currency pair for the following speculative transaction should be done according to cer- tain parameters, and patriotism and residence are not among them.

The basic criteria for a choice of currency pairs should be their liquid- ity, activity, and average amplitude of fluctuations (trading range). The higher all these parameters, the more preferable such currency pairs are from a speculative trader’s point of view. The list of currency pairs most suitable to such a definition, first of all, includes the following: USD/CHF, USD/JPY, EUR/USD, EUR/JPY, GBP/EUR, GBP/JPY, and CHF/JPY. You may be surprised that I have not included in this group Cable (GBP/USD). The reason is that this currency pair has almost ideal liquidity as well as

all other majors, but the average day amplitude of Cable fluctuations is lower than would be desirable. Also, the small cost of a GBP/USD pip is, from my point of view, better for an intermediate term positional trade than for short-term intraday speculations. (I sometimes trade it, but not very often.)

The most important and final criterion when making a choice of a cur- rency for short-term speculative trade should be maximum conformity of a current technical picture, and how it fits to a trading technique and/or to a trading system that you are going to use. Because in this book we talk particularly about my trading technique, just the maximum conformity of the chart to one of the templates used by me becomes a determining fac- tor for a choice of a particular currency for a particular trade. It is espe- cially important if, in the given moment, the market is in immediate proximity to some key technical level.

I accept diversification and, from my point of view, it is possible and necessary to trade various currency pairs. However, my personal practice shows that having simultaneous positions on various currency pairs dis- seminates a trader’s attention. It’s rather difficult to follow all the currency pairs at the same time. Therefore, I simultaneously hold open positions on no more than two or (very seldom) three currency pairs. In some cases (for example, trading USD/CHF and EUR/USD), I frequently use substitu- tion. By substitution I mean analyzing one of them, but (on the basis of this analysis) trading the other one.

The Swiss franc basically doesn’t have its own brightly expressed identity in the marketplace. On a large scale, it is not more than a proxy in relation to Euro. At the same time, it has high activity, large amplitude of fluctuations, and perfect liquidity. These characteristics allow USD/CHF to be one of the most attractive currency pairs for speculative trade.

CHAPTER 11

Date: 2015-12-17; view: 858