First of all, I do not believe in the perfect currency pair. Some Forex pairs may seem too slow-moving, some others may show too much volatility for one’s taste. Depending on which part of the planet you live, some pairs may be more active at night, while others are more active during the day. So how can you select the best currency pair for you?
Something very important to remember when selecting your trading pair, is that the reasons why a market moves can be both of technical as well as of fundamental nature. So it is not only important to analyze your charts all the time, but to also listen to important news that could influence your pair. For example, if you live in the United States and would like to trade a pair such as the US Dollar / Japanese Yen (USDJPY), then you need to remember that the market-moving news in the US usually happen during the US trading session ending at 5:00PM EST, while Japanese news events usually take place later in the evening or during the night (US time). Some economic news may influence the price movement of a pair quite dramatically and in a very short time span, so it is recommended that you make yourself available when such news are being released.
The currency pairs that are being traded the most are called “majors”. The majors are EURUSD, USDJPY, GBPUSD, AUDUSD, USDCHF, NZDUSD and USDCAD. If you watch these pairs, you will soon discover that they influence the direction of the majority of the remaining Forex pairs.
Each individual currency can be influenced by many different factors. Some country’s currency may be dependent on the price of the commodities it exports, such as crude oil in the case of Canada. Political as well as economical stability of a country also greatly contributes to the strength of its currency. Just think about the negative effect the financial crisis in Greece has had on the Euro.
At a later time, you may trade multiple currency pairs at once and use opportunities as they arise. However, if you are a beginner, it is probably more appropriate to trade one currency pair that represents countries that you are familiar with, possibly on the same continent as your location and near your time zone, so you do not miss any newsworthy events.
Watch your candidate pair for a few days before you trade it. Learn about its “temper” and see how it reacts to major economical news. Does it have any regard for supports and resistances, or does it seem to ignore them entirely? Does it retrace a major rally? Is it forever ranging, or mostly trending?
Lastly, choose the pair(s) that mirrors your own character. If you are an individual in constant need for the extra adrenaline kick, then choose volatility over boredom. If you like long-term investments rather than day trades, then pick a pair with a solid multi-year trend. If, after taking all these things into consideration, you still can’t decide which pair you would like to trade, then just.. flip a coin! What currency should the coin be?!? That’s a topic that we can talk about another day.