How do you choose your currency pairs? I know that is a very vague question but I've been researching currency pairs and I don't seem to be able to find the data I'm looking for. What makes the currency usd/jpy more valuable then say the eur/usd? I know the different pairs move different amounts over the weeks and months and they usually follow patterns but I can't seem to find a chart or a tool with this data. I feel I need to have a really good grasp on the currency pairs to be successful trading.
As I have mentioned in previous posts, I research the movement in various currency pairs in reaction to each news event. To do the research I am using the forex calendar at forexpeacearmy.com and historical settlement data. If you go to that calendar you can see a list of news events. But, if you click on the event, it will show you a listing of all the previous events of that same type in its database. For example, here's a screenshot of the forex calendar on the site for next week:
Notice the event called ISM Non-Manufacturing PMI. It is marked with the icon indicating that it is supposed to be a high-impact event. If you click on that you will get a listing of all the previous releases for that particular report as shown here:
From there, if you click on the chart symbol, you will see a 1 minute chart zoomed into the time of the event. So, if I click on the chart for the July 3rd data release we get this:
If you study that chart, you will be immediately suspicious of this supposedly high-impact report. This chart is showing what happened in the EUR/USD. It popped about 16 pips in the minutes after the release from a prerelease value of 1.3604 to 1.3620. But, by the time of the next expiry at 11AM, it had fallen back to 1.3610. In my view, that report was garbage on July 3rd because it didn't cause sustained market movement.
Now, on the chart of the event, you don't have to restrict yourself to just looking at the effect of the data release on one currency. Look at the top left corner. You can select the currency you want to look at. Also, you can select the time frame. But, the chart will be marked to show the data release time so you can follow what happened after the data came out. So, before giving up on this Non-Manufacturing report, I would do two things: 1) examine the effect of the data release on other currency pairs and 2) look at other days the data was released. Maybe, July 3rd was not a very good day to trade this report, but the history of the report on other release days might show that the great majority of the time, it causes a lot of sustained movement in a particular currency.
We can't win every trade on these data releases. Even a report that causes a big movement 80 percent of the time can have a bad day where the market just ignores the data and the currencies don't move much after the data comes out. In that scenario, I would probably lose all my money I risked in the trade. We have to accept that possibility. But, I'd rather take a trade that causes a big move in a particular currency 80 percent of the time instead of taking a trade on a data report that only causes a big move 50 percent of the time. In fact, there is no way I would take that latter trade. I am looking for high-probability of having a successful trade. The only way I can know if it is a high-probability trade is to look back at the history of the report as I have explained above.
For, example, if you followed the procedure I mentioned above for the NFP release from yesterday, you could have seen that AUD/USD often makes a big move up or down after the NFP data comes out. The USD/JPY does too. However, since the prices of the contracts didn't make any sense on the USD/JPY, doing a quick check on the AUD/USD would have shown you that that was a high probability trade as well.
You could also use this research method to get a good trade where you buy the lower strike and sell the higher strike. In other words, if you look at the history of the report and you see that 80 percent of the time, a particular currency doesn't move much after a particular data release, you could use that knowledge to setup trades that will make money if the underlying currency doesn't move.