I am new to Forex, and I’m confused about currency pairs because there are so many. Which pairs should I focus on for trading? Also, which time frame should I use? For example, if I look at the 4-hour time frame, it shows a downtrend, but if I check the 1-hour time frame, it shows an uptrend. Which time frame should I use?
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The major pairs are cheapest to trade as they have narrower spreads - pairs comprising combinations of USD, EUR, GBP, JPY, CHF.
Australasian pairs include one or other of AUD and NZD, and minor pairs including CAD have wider spreads, so they cost more to trade: wider spreads also make very short-term trading difficult.
Exotic pairs are expensive and less predictable - pairs including RUB, SGD, MXN, ZAR, BRL, NOK, SEK etc.
You can always find a time-frame which shows you the opposite picture to another. But if your trade entry and exit decisions are made on the shorter time-frame, that is the most important, and a longer time-frame gives you confirmation of trend direction. If the two are opposite, there might still be a trade, but risk is higher.
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There are dozens of threads in the forum addressing this specific question (which is, of course, a good one).
By far the commonest answer and advice is EUR/USD. That doesn’t necessarily make it the “right answer” but it’s certainly what most successful traders would advise.
It’s the pair that has by far the highest liquidity, smallest spreads and dealing costs and it’s normally “fairly well behaved”.
That’s normal: financial instruments will usually trend in different directions on different timeframes.
Some people (especially trend-followers) trade only when the trend direction is the same on the timeframe they use and one or two higher ones.
For the most part, which timeframe to work from depends on the style of trading you want to use, and your own hours of availability. There’s no “one size fits all” answer.
The post linked to below (click the green link) is the most helpful one I’ve seen, on this subject. Have a good read.
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Time frame depends if you want to be a scalper, day trader, swing trader etc.
I like scalping because I can finish my trading day by around 8:30am using the strategy I like, so I have a lot of free time. I use the M1 timeframe to trade but it’s not for everyone.
Some like day-trading, some prefer swing trading, it’s all down to you.
I think trading using longer time frames may be less stressful, at least to some extent.
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Have you read any of the School here? Check out the Learn tab above. There’s plenty of lessons you can go over to your answers.
As a newbie, I also faced the same issue. Then I researched it, and it’s best to stick with major currency pairs like EUR/USD and AUD/USD because they have high liquidity and lower spreads.
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Look for high volatility and liquid pairs. But make sure to calculate your trade size before entering. Always adjust the risk as per your capabilities.
This is exactly right (and generally EUR/USD better than AUD/USD, too, for the same reason).
Why?
I’m asking because the people (and sources) teaching me have all been stressing the importance of avoiding high volatility, especially in the early stages, as it increases risk so much.
You’re right that high volatility can be risky. I brought it up because these pairs usually offer better liquidity and tighter spreads, which helps with smoother trade entries and exits. As I have mentioned earlier also the key is to control the risk by adjusting your trade size and using stop-losses.
I used to trade everything, majors, and minors. But these days, I mostly stick with the majors, like EUR/USD. Honestly, I get the best results looking at both the charts. The 1-hour and 4-hour they show clearer trends and cut down on the noise. I learned this after experiencing the volatility of GBP/JPY, where quick gains were often offset by rapid losses
Choosing the right time-frame is often where traders go wrong right from the start.
It’s not unusual to see daytraders with a stop-loss distance less than the spread at certain times during the normal day. This almost guarantees a loss. It’s virtually impossible to do this on a D1 trade.
On top of which, new daytraders share a tendency to want to wing it through the market session, to play by intuition, rather than a defined strict strategy, especially since the stakes are very low and there isn’t much time for analysis anyway.
It needs to be recognised that it’s the strategy which makes the profit, not the trader.
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It does indeed. Especially in web forums where so many people wrongly say the exact opposite.
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