How to trade currency pairs

Currency pairs could be divided into several categories:

• Basic or main currency pairs (major).
• Cross rate currency pairs (cross).
• Exotic currency pairs (exotic).

Major currency pairs are pairs of the developed countries’ currencies with the US dollar. These are the following currency pairs: EUR/USD – euro / US dollar, GBP/USD – pound / US dollar, USD/CHF – US dollar / franc, USD/CAD – US dollar/ Canadian dollar, USD/JPY – US dollar / yen, AUD/USD – Australian dollar / US dollar and NZD/USD – New Zealand dollar / US dollar.

The EUR/USD currency pair is the most popular one among traders.

Cross rate currency pairs are pairs of the developed countries’ currencies, which identify the relation of the currencies between themselves without the US dollar. Examples of cross rate currency pairs: EUR/GBP, EUR/AUD, GBP/CHF, EUR/JPY, AUD/NZD, AUD/CAD, GBP/AUD and so on. There are much more currency pairs of this type.

Trading cross rate currency pairs is popular among more experienced traders. For example, you analyzed macroeconomic data and actions of the EU and Japan central banks and realised that the yen should become stronger and euro – weaker. Then, you open a EUR/JPY short on the basis of the conclusions made.

Exotic currency pairs are pairs of developing countries with respect to the US dollar and other currencies of developed countries. Examples of exotic currency pairs: USD/MXN, GBP/SEK, USD/ZAR, USD/RUB, USD/HUF, USD/TRY and so on.

Exotic pairs are the domain of experienced and very experienced traders, since there could be sharp exchange rate fluctuations, high trading commission fees, low liquidity, etc. On the other hand, there could be strong movements, especially when news are published, which could bring significant profits.

Currency futures, which completely coincide with currency pairs in the Forex market by their movement dynamics, are traded on the Chicago Mercantile Exchange (CME). The quote could differ a little bit but the movement character is the same. It gives a possibility to analyze real data about volumes, which are not available in the Forex market, and, in such a way, to improve forecasts of the currency pair movement dynamics.

Also, a letter is added to the futures name, designating the month, and number, designating the year. These symbols point to the date when the futures contract will be executed (expiration date).

Letters that designate months: F – January; G – February; H – March; J – April; K – May; M – June;  N – July; Q – August; U – September; V – October; X – November; and Z – December.

Numbers that designate years, for example: 0 – 2020; 1 – 2021; 2 – 2021 and so on.

For example, the 6EZ0 futures means that it is the EUR/USD futures contract with expiration in December 2020.

How to make the forecast on EUR/USD or other currency pairs?

Usually, when building forecasts on currency pairs, fundamental factors are taken into account.

In principle, fundamental analysis of currency pairs is the subject, which fits for multi-year study in a higher educational establishment and further practice for several years. Only then a trader will approach understanding of how to make forecasts.

The reason is that there are a huge multitude of factors, which influence the EUR/USD currency pair movement, since we speak here about two largest world economies. Any detail in these huge and complex mechanisms influence the current quote one way or another. Namely that is why so much time is required to study the operation of this mechanism and, of course, we cannot describe everything in one article.

We would just briefly note that the highest qualification is required for building a forecast on fundamental data. If a trader compares unemployment levels in the US and Europe and also GDP correlation and makes his forecast on the basis of these data only, such a forecast is far from taking into account other important factors and, consequently, has a low value.

That is why beginner traders should study more efficiently:

• technical analysis,
• cluster analysis (Footprint),
• capital and risk management methods,
• trader psychology management methods.

These directions allow making faster progress.

Of course, you should start with the currency pair chart. It is preferable to study the currency pair chart every day, so that your eyes and brain would remember the currency pair movement dynamics. It would become easier for you to analyse and forecast the currency pair after you gain some experience.

Then you need to get acquainted with the Footprint theory, which studies interconnection between trading volumes and price movements.

Volume analysis is applicable not only on classical instruments but also on exotic currency pairs, such as RUB/USD.

We will show it through the example of the USD/RUB futures (Si) chart.

• Open the chart in the ATAS platform.
• Add the Market Profiles indicator from the trading ATAS platform to the currency pair chart and it would provide you with a possibility to make more accurate forecasts.

Let’s consider a simple strategy on the basis of the Market Profiles indicator  and analyse the EUR/USD currency pair. The chart example:

1. We analyse the daily time-frame. We conduct analysis in the morning before the European session starts.
2. If the maximum daily volume (POC) moved down with respect to the previous day’s maximum volume and the price is below the previous day’s maximum volume – most probably, the market would continue to move down and it makes sense to search for points of entry into sells.
3. If the maximum daily volume (POC) moved up with respect to the previous day’s maximum volume and the price is above the previous day’s maximum volume – most probably, the market would continue to move up.
4. In such a way we continue to monitor price and volume dynamics every day.

This simple approach will not take more than 5 minutes a day but will move your chances to make a profit into the positive direction.

• Select the currency pair which fits you best of all. Selection of the currency pair and trading instrument is like selection of your favourite car. You should like it and it should fit you. The same is true for the currency pair – you will spend a lot of time analysing your working instrument chart. After some time, you should learn to feel and understand, analyse and forecast your currency pair. It should fit you by the time of activity and temper. If you have a calm temper, select less volatile instruments. If you are inclined to take risks, more volatile instruments with an intensive news publication schedule would fit you better.
• Learn your currency pair deeply. Become an expert in it.
• Do not spread yourself too thin. Build your trading strategy. Learn to trade profitably one instrument, then take another one.
• Master volume analysis with the help of the trading ATAS platform. It gives a possibility to trade together with major players and, consequently, make money.
• Study macroeconomic analysis and economies of the countries, the currencies of which you trade. It will give you a possibility to understand global trends of your currency pair.
• Use the Market Profiles indicator and other advanced indicators from the trading ATAS platform for building a profitable trading system.

We wish you profitable investments and trades!