The USD is involved in 85% of all transactions and there are 8 USD major pairs.
I believe that the technical analysis we do only works because of manual intervention. By this I mean fibs, trend lines and support resistance only have meaning because we are all expecting them to work, so we place our entries and exits around them. Thus they tend to work.
Well I am wondering what this actually means for pairs which have little interest. Minor pairs and exotics have a couple of % or less in terms of being actively traded. So one would assume there arn’t people dealing with these pairs to make the fibs, trend, sup res lines to work nearly as well as on the majors.
The EUR/USD has the most eyes on… and so you would expect fibs etc to work alot better.
So should I just be trading majors which have most interest and thus more trust worthy analysis tools?
Without putting too fine a point on it, the phenomenon you are describing has to do with the tendency of the human brain to look for patterns to help us define and explain the world around us. When we think we see a pattern, we expect it to continue, or repeat.
That may or may not be a rational expectation, depending on the subject and the circumstances. But, believing that a pattern will continue (or repeat) makes us feel that the future is predictable, to some extent.
When lots of people see the same pattern, and come to a similar conclusion that the pattern will continue (or repeat), we have the makings of a self-fulfilling prophesy.
I don’t think there is nearly as much correlation between (1) trading volume, and (2) standard TA tools, as you are supposing.
I can’t offer any mathematical proof of my statement, but I can offer some anecdotal evidence.
Below you will find daily charts for 4 different currency pairs. I have removed the names of the pairs, and the price axes, to make it more difficult to guess which pairs these are.
Study these 4 charts, looking for trends, support and resistance levels, and evidence of common fibonacci retracements (or extensions) — and try to determine whether these charts depict major pairs, minor pairs, or some mixture of major and minor pairs.
Chart #1
Chart #2
Chart #3
Chart #4
In my next post, I will identify the 4 pairs shown above.
I think the first one is a euro pair (EURUSD maybe), because I recognize the big movement from last week at the end of the chart.
I think Chart 2 and 4 are USD/XXX pairs (from the uptrend the USD has been in last year) where I think the last one is the USDCAD.
So from this I guess it are all majors, even if I don’t recognize number 3 without looking at my MT4 platform
I’ll be honest with you. I’m mainly a technical guy and traded the majors + all the crosses and exotics this year. The vast majority of my profit came from trading the majors. The minors + exotics barely broke even.
My own belief is that the minor pairs tend to be affected by “technical crosswinds” from the majors. So suppose the USDJPY has hit a resistance level and stopped rising. This will have a flow-on effect on the JPY crosspairs, making them more difficult to predict.
On the otherhand, if the CHFJPY hits a resistance level, the USDJPY isn’t going to care. In fact, if the USDJPY continues to rise, the resistance level on the CHFJPY will likely be ignored, making technical analysis on the CHFJPY kinda pointless.
The benfits of trading with majors is their low spread as compared to other pairs. Also the liquidity and movement is decent enough to get some pips on daily basis.
another advantage and one that I use for every trade is the USD index aka DXY, many will also use the futures.
I trade a correlation or noncollolation to the DXY (mostly majors and XAU or XAG) couple with strength and weakness for momentum you have a very powerful duo.
My advice is to use only pairs you know well, regardless of their popularity. And by “know well” I mean knowing how they move, what events and politics affect their movement, how prone they are to volatility, where to find information about big impact news affecting their volatility, etc.
I’m new to this, but I don’t really understand how it is even possible to earn something of USD/EUR trade. These are very stable currencies and probably movements are not that dramatic. Btw guys what is the most unique currency you have to deal with?
EUR/USD currently has a range from highest price to lowest price of about 0.0050 per day. That is also referred to as 50 pips. Might not sound much but imagine you have “bought” or “sold” the EUR/USD at $10 per pip at the high or low. That’s already $500 per day profit (or loss).
Obviously, intra-day moves can exceed 50 pips on what looks like quite a quiet day.
So profit is there if you can take it. But that’s the hard part.
