If you are going to chose another pair, make sure to use an uncorrelated pair (as much as possible). If you trade GBPUSD for example, most of the time it will feel like trading EURUSD, when one is flat so is the other usually.
Go for GBPJPY if you like fast markets, but it is a dangerous pair i think :P be careful!
That's what I was thinking - but I believe the crosses are a little more "dangerous' in general because they are mostly a derivative of two majors. They therefore don't behave like the majors in that you can get nice moves but you can also get more extreme moves in the wrong direction, or just a cancellation effect when the majors are trending.
For example, say you're long GBP.JPY and the Cable is strengthening. Well you're good as long as the Yen doesn't strengthen as well (and it often will if the USD weakens). If not your trade is really a bet that the Cable is going to strengthen more than the yen. I think this makes for a weaker trade - a good trend on a major can be washed out or go nowhere on a cross (and do you really want to ignore the USD in the current risk on/risk off paradigm?).
Even so, a trader might have a good case for Cable vs Yen and this can make for a stronger trend, but that can also go the other way - if, say, the Cable weakens but Yen strengthens. I believe in most cases I would really rather be long either currency against the USD than a cross pair unless I had a specific reason - or was too experienced to be asking the OP's question!
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I don't share your conclusion. This is a bit of a simplistic reasoning. To find the most interesting currency pair, you would look at the $ volatility per lot in relation to the bid-ask spread and commissions. I do not want to produce an excel table here with the different pairs, so let us just compare EUR/USD and USD/JPY. Let us further assume that I buy 1 lot of EUR against the USD or 1 lot of USD against the JPY.
You cannot compare the pip values of the daily ranges of two FOREX pairs with different base currencies
Daily range of the last 4 weeks for EURUSD: 108 pips, value of 1 pip = 0.0001 $. The $-value of the daily range is therefore 108 pips * 0.0001 $/pip * 100,000 = $ 1,080
Daily range of the last 4 weeks for USDJPY: 83 pips, value of 1 pip = 0.01 Yen. The $-value of the daily range is therefore 83 pips * 0.01 Yen/pip * 0.0124 $/Yen * 100,000 = $ 1,029
You need to take into account the position size
Actually the USDJPY has a higher volatility compared to the EURUSD, as the $ value of $ 1,029 refers to the purchase of 1 lot of USD, which is a smaller position compared to 1 lot of EUR. Actually if you divide the $ value of your daily range by the position size, you will get
-> relative daily range USDJPY = 1.029 %
-> relative daily range EURUSD = 0.822%
This is just the contrary of what you explained.
USDJPY actually has a higher volatility than EURUSD.
This is just to show that you cannot measure volatility in pips, if you compare FOREX pairs with a different base currency. In the end you need to compare the spread and the commissions for 1 lot - that is what you pay - with the $ amount of the volatility - that is what you get for your money.
Last edited by Fat Tails; April 16th, 2012 at 07:34 PM.
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Hi Harry, I do respect and appreciate your thoughts, but I also do not share your conclusion. Even tho I believe you are right, but for me it is a bit complex way to think, mainly when it comes to the reality and put it in practice... So I prefer to keep things very simple "simplistic" as you will, simplicity makes me money and complexity losses me money. And the funny thing is that simplest things are the hardest for most people truly understand...
Right now based on my data EUR/USD daily range is 104 and the USD/CHF daily range is 78... 104>78 so I prefer to trade EUR/USD instead of USD/CHF...
Today I had a sell signal on EUR/USD and a buy signal on USD/CHF, but I only short the EUR/USD [and also EUR/JPY].
Once 104>78 why would I want to make less...
If it is false or confusing I do not know, all I know I only trade pairs and instruments that have high potencial for profits.
Having said that, in my case if the potencial for profits on the currencies is greater than 100 points daily [and I also look for weekly potencial] I do trade it, if it is not I do not trade it and I will leave it alone... And I also mention before on my previous post I also take others things into consideration such as spread for example if I am trading forex...
Again, the way I think could be false or confusing, but I do not mind... If X>Y then I prefer X. And it works very well for me...