In order to trade in the right market, you need to consider some important matters when choosing the forex pairs. This article will also provide some useful knowledge on the basics of reading a chart.

Let's say, you have opened a demo trading account in a certain broker, you have downloaded their trading platform and installed it. So, then, what do you do after installing the platform? Two of the first step you will take after opening your trading platform are reading the chart and choosing pairs to trade.

Chart reading skill is one of the basic skills of a trader. Traders are not only looking at numbers in their activities but also charts. Basically, the chart is designed to make it easier to see patterns of price movements. It is much better watching the ups and downs in a chart, rather than keeping your eyes on bid/ask prices.

 

Choosing Forex Pairs

Before we go on with the topic, let's revisit our understanding of currency pairs. In forex trading, currencies are traded in pairs. For instance, in the EUR/USD pair, EURO refers to the base currency and the USD is the counter currency. If the price shown on the chart for EUR/USD is 1,2300, then it means 1 EURO is worth 1,2300 USD. I'm sure you've already understood that basic knowledge.

Choosing pairs to trade should be done by understanding the characteristics of the pair. Hopefully, by understanding them, you could minimize the possibility of loss and maximize your profit potential. Just choose a pair that you consider as the most convenient and enjoyable in term of these three categories:

 

1. Based on Ranges

The daily average movement is the most sought-after because it indicates the direction of the trend. For a beginner looking for a pair, you could also use it to choose a pair with a relatively small range. Pair EUR/USD is particularly a favorite among traders due to its average movement below 150 points, not so extreme but not too small either.

If you want more relaxing trading, you could trade NZD/USD. This pair has a daily average movement of less than 70 points. If you want to try a little bit extreme trading, you could choose GBP/USD. The daily average movement can reach less than 200 points. You can use the pair to look for more profit opportunities. However, the most extreme pair is gold trading (XAU/USD). The movement reaches just less than 2500 points. Considering that high movement means high risk, hopefully each trader can choose which pair is suitable for his.

 

2. Based on Volatility

High market volatility makes for unpredictable pair. But some people like this kind of pair. It is a challenge to make a great profit by succeeds in passing through difficult movements. Some of high volatility pair are GBP/USD, GBP/JPY, etc.

 

3. Based on News

Each pair has fundamental background that may push it up or down. However, the most frequent news come from EUR, GBP, USD, AUD, and JPY. News from other currencies like CAD, NZD, and others are less conspicuous. Trading around news releases can double your profit, or on the opposite, double your loss.

 

The Basic Method in Reading A Chart

Your choice of currency pair can give you opportunities in making profits. It is a strategic way to optimize the use of your funds. Focus on pairs you are interested in, use it for trading, and deepen your understanding on it. Armed with that understanding, you would be prepared to see a chart in your platform trading.

trading

The picture above is a chart displayed on the MT4 trading platform. The horizontal lines follow the journey of time, while the vertical lines follow the highs and lows of price movements.

If you open the 'buy' position, it means you expect to gain profits from the rising chart. The trend that is going to benefit you is an uptrend. Expecting uptrend here means you expect the value of the base currency to strengthen against the counter currency. So, if you take a buy position on pair EUR/USD, you'd expect EURO will strengthen against the USD.

If you are trading based on fundamental analysis, make sure how the expected effect of upcoming news on the currencies in question before taking a position. Note the time frame on the chart. Remember, different time frames can lead to different interpretations of the movements of a pair. So, adjust the chart time frame in accordance with the trading system you use.

time

The next thing you should check is the spread (difference of bid/ask). The most chart shows bid prices. If you open buy position, then you buy with 'ask' price. And if you sell, then you are surely going to be charged with 'bid' price which is (of course) lower than the 'ask'price. Be careful not to see the chart all the time, because then you could have missed your Target Points (TP).

market

Last but not least is related to time. Make sure you adjust the time listed on your chart with your local time. This is especially important if you trade on the news. The fundamental news schedule is based on GMT.

Next, you can put up indicators according to your taste to help to obtain additional information from the chart that dances in front of you.