How To Trade A Single Currency Pair And Make Money – The Ultimate Guide
There is a universal idea in Forex trading that states:
“To trade, or not to trade a single currency pair. That is the question…”
Many traders, including myself, have been wondering what was best for a long time. And given that there's so much misinformation out there, I decided to explore the issue myself.
Is there really one best way to do things? I don't think so, but I wanted to turn this article into a guide so you can understand what trading a single currency pair means, but also how to do it.
The content below won't be what you've seen everywhere online. I am basing this article on my own experience (and experiments I performed).
What's the difference?
The first thing I wanted to bring your attention to is the idea of trading multiple currency pairs.
Most traders, including myself, will select a few currencies that they think are acceptable to trade. Then, traders will watch those currency pairs throughout the trading period (for intraday trading) or throughout the week (swing trading) until they are able to execute on their trade plan.
Thinking to trade a single currency pair involves several steps, all of which are described in-depth below.
First, a trader needs to pick his/her favorite pair. Then, the trader needs to be flexible enough and come up with several plays. A one-currency-pair trader would likely trade based on the circumstances of his/her selected currency pair. That being said, he could have more than 1 plays in his trading playbook.
Multiple currency pairs
- Easier to recover from losses on a given currency pair
- Less likely to experience not seeing any setups for a whole day/week
- Better understanding of pair correlations required
- Can be more distracting
Single currency pair
- No risk of trading correlated pairs
- Better ability to focus
- Feeling of understanding the price movements more
- Can be a struggle to stick to ONE pair
- Feeling of missing out when big moves happen on other pairs
How To Trade A Single Currency Pair - And Make Money
If you are looking to show up as a Forex trader and trade a single currency pair, read on and I'll guide you through the steps. If you still aren't sure whether you should give it a go, I recommend you evaluate your current trading methodology. Are you satisfied? Is it profitable? Do you feel confused?
If you jump into trading a single currency pair, make sure that you try it for an extended period of time before judging. You can't trade one pair for a week and be frustrated if you don't make any money.
Good, we'll start!
Step 1: Pick Your Currency Pair
I'm always amazed by how many articles exist on "the best currency pair to trade". That is nonsense and won't apply to everybody anyway.
Here's what you should consider when choosing a currency pair to trade:
If you are day trading:
- Is the spread fairly low?
- A big spread will make it more difficult for you to earn a profit. There isn't a clear rule here, but pairs like EUR/USD, AUD/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY, AUD/JPY tend to have low spreads.
- Keep in mind, however, that pairs with a higher spread sometimes are more volatile. That's the case for GBP/JPY.
- Is the pair active when I intend to trade it?
- I discussed that issue a lot. Even though the Foreign Exchange market is open 24/5, some pairs may be less traded at some specific times. Refer to "When To Trade Forex To Maximize Your Lifestyle & Profit?".
In any case:
- Do you understand the currency pair you want to trade?
- If you trade a pair with your country's currency, your chances of understanding how the price of the pair fluctuates might be higher. You will know what's going on and might even be able to know where the currency is heading (we are talking of fundamental analysis here...).
- Is the pair too or not enough volatile for you?
- Don't be surprised to see big swings in GBP/JPY or GBP/NZD because those pairs are considered more volatile. Some traders like it because the profits usually come quickly, but stopped out trades can be more frequent.
- On the other hand, a pair like USD/CNY will have some inactivity periods (see chart below) and that might be frustrating.
My personal preferences: AUD/JPY, GBP/USD, and USD/CAD.
Step 2: Plan Your Trading Plays
Now that you've picked a currency pair to focus on, you'll want to think of ways to trade it.
While I'd love to provide you with "the winning system", that wouldn't be a smart idea. There are countless ways to trade the market, but you need to find something that makes sense for you and become the expert at it.There are countless ways to trade the market. Find something that makes sense for you and become the expert. Click To Tweet
Implement the market phase
If you want to trade a single currency pair, you need to become very articulate with the concept of market phase, that is, identifying in what stage of price movement the market is currently in (foundation, rise, consolidation, decline). For this, I recommend reading Stan Weinstein's Secrets For Profiting in Bull and Bear Markets or taking a look at the lesson below in which I explore the topic in details:
Taking It Further
You'll need to practice before you can figure out when a currency pair changes from one phase to another.
Nevertheless, you know that there 3 types of trades in any market:
Your primary job as a trader then becomes to identify when to enter those.
Here's an example:
Don't forget this part...
When it comes to defining trading plays that you are comfortable with, keep in mind that you shouldn't enter trades based solely on a change in the market phase.
For instance, a range breakout might not work at all times. It is important for you to know what characteristics your most successful trading plays have.
That is where confluence comes into play. A breakout in a strong uptrend, for instance, is much more likely to turn into a successful trade.
Step 3: Make Your Chart A School Board
Remember those times when the teacher was asking you to come up front and draw on the board in front of the class?
That's what I'm asking you to do here. But let me explain...
At any point in time, you should be able to identify areas on your chart at which you'd be willing enter a trade. It doesn't mean you'll get in the market at that exact area, but you'll want to pay closer attention to price movements.
Here are the things I'll identify on my chart:
- Support and resistance areas (only if the market is ranging)
- Previous highs and lows
- Dominant trend
- Where the price is likely to bounce again in the future
I'll agree with you here. Price movements aren't always perfect. When the price is going all over the place without respecting the market phases, you can decide to stay away from trading until you identify a clear trade opportunity. That's part of a trader's job.
Step 4: Stay Consistent
That one is tough...
But if you decide to trade a single currency pair and go through the previous 3 steps, you have ONE more thing to do.
Stick to the process for at least a month.
You might start the month feeling excited. You might get discouraged because you've taken too many or too few trades two weeks in.
No one cares. Stick to your decision.
At the end of the month, two things will happen:
- You'll have built more confidence in your ability to remain consistent.
- You'll have performed an experiment and will be able to say what works vs. what doesn't.
Those are two great things for someone who's looking to grow as a Forex trader.
By now, you have a complete overview of how traders trade a single currency pair. To recap, here are the steps you need to go through:
- Pick Your Currency Pair: don't get caught up in looking for the perfect pair, but pick a good one.
- Plan Your Trading Plays: understand how the market move and select the types of trades to focus on.
- Make Your Chart A School Board: draw on your chart and identify areas you're interested in.
- Stay Consistent: commit to trading according to your plan for a month and evaluate after.
Did that article influence you to change the way you trade? What results have you gotten from trading a single currency pair? Share your thoughts below so that other traders can get inspired and/or take action.