There are two ideas to remember here. For me, most of my analysis and trading in the forex involves just seven pairs. I divide them into two groups. First is the “dollar correlated” majors:
…I know there are plenty of other great trading pairs but for me, I like to keep my basket of currencies focused on those pairs that I can use the secondary confirmation of key futures contracts like the
I call them my “market pulse”.
I like to trade the during the overlap between Frankfurt, London, and New York which makes my active trading time between 7am EST and Noon EST.
(In a later post I will show you the statistics behind pip movement on these pairs.)
There one common thread that connects the pairs I trade — the most traded pairs in the forex universe — and that’s the U.S. Dollar.
Think about it. The three most traded pairs, known more commonly as the “majors” are he EUR/USD, USD/JPY, and GBP/USD. Currnecies that trade against the U.S. Dollar make up for than 80%-plus of daily turnover.
This means understanding where the key decision levels are on the chart and how each currency trades against the dollar. Initially you can look at the relationship between each pair and the dollar index and determine if it’s sympathetic or inverse.
In part two I will explain the relationship between the dollar and the market pulse and then in part three we will look at the each of the seven pairs I trader and the relationship back to the market pulse.