Article by Investazor.com
In our previous article on scalping we pointed out some important thing to be pay attention to when choosing you broker. Now, we strongly believe that it is very important for beginners to know which currencies are best suited for this trading strategy.
As we already know, scalping strategies involve short term transactions due to bring profit. It can be defined as being a highly specialized trading method which requires, despite from strong technical and fundamental analysis knowledge, favorable technical setup, in order to bring important profit and satisfaction to the scalper.
As the technique is oriented towards a specific kind of movements in the market, it is mandatory for the scalper to know which currency pairs are best suited to scalping strategies. Generally speaking, it is desirable to be traded the smallest spread currencies, that also have the lowest costs. More precisely, it is recommended to be oriented towards the most traded currencies, those that have the highest liquidity in the market.
Moreover, this kind of currency pairs is not prone to very sharp movements and give the less surprises in the market. We will categorize 3 types of currency pairs best suited to scalping, in order to also exemplify to which currencies scalpers must pay more attention.
Please be informed that the examples we are going to give to you are relevant only for this period of time, because the market is in a continue evolution and changes appear all the time. The generic type of currencies is the one that counts, while the particular examples can easily change in time.
The so called Majors are the currencies formed by the most powerful and dominant economic currencies in the world. Their major characteristics are liquidity and responsiveness to market shocks.
Nowadays, in this category we can include EURUSD, USDCHF, GBPUDS and USDJPY. These are the major pairs traded by the majority of the banks all over the world and also by all important institutions and traders, being the most followed by scalping fans. What is important regarding this category of currencies for scalpers is that they move slowly in the markets and that they bear the biggest amounts of trading in terms of volume.
Being some kind of stable currency pairs, scalpers can take advantage of it in order to accumulate conservative repeated profits.
Carry pairs are the currency pairs formed by a country whose currency has high interest rate and one that has low interest rate. Their major characteristic is that they are traded all over the world and that they are very volatile. It will be easy to understand that these are not stable pairs, but their evolution and changes directly depend on the evolution of the interest rate.
For the moment, the most important examples for the category are: USDJPY, EURUSD, AUDJPY, NZDJPY, AUDUSD and EURAUD.
We often found the information that EURJPY pair is also included in the carry pairs category. We are to believe that the case is no longer applicable given the fact that the difference between the interest rates is becoming smaller and smaller: 0, 5% for EUR and for JPY tends to 0%.
It is important to point out that it is not advisable for beginners to scalp with carry pairs because at times spreads widen very quickly and even stop-loss order are not enough to avoid loss.
Experienced scalpers are also advised to trade them using typical trend following strategies as to exploit breakouts and other sharp movements.
Exotic currencies are those formed by at least one exotic country’s currency. Their important characteristic is that they are rarer, less liquid and less well-known forex pairs than the other two previous categories of currency pairs.
We can enumerate the pairs: USDSEK, USDZAR, USDTRI, NOKUSD and BRLUSD or the Russian ruble.
It is mostly recommendable for experienced scalpers to trade this category, because of the unpredictable gaps that appear frequently.
But beginner traders that have strong knowledge of money management strategies can find them perfect to scalp.
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