One little trick to help you choose what currency pairs to trade

Fibonacci

Hey traders how is everything? How is your trading going so far this week?

I want you to tell me something… How do you decide what currency pairs are you going to trade each day?

Do you do some kind of analysis before you start trading? Or you just pick randomly the currency pairs? Or word yet… you trade the same currency pair(s) every single day no matter what?

Think about that question… because I believe that the answer to that question could have a very large impact on your trading.

Think about it…

  • What if you traded only the currency pairs that have the clearest market conditions each day?
  • What if you only went long when the market was more likely to move up, or short when it was more likely to go down?
  • What if you were able to stay away from the currency pairs that are more likely to whipsaw?

Well… you can.

You just need to do your own analysis. And I’m going to show you how I do mine.

How to do your Daily Analysis

The first thing that you need to do is to look at your daily charts (1D) and try to determine what it is likely to do.

Remember the market most of the time moves in swings: from one important level to the other (S&R levels). So if it was just rejected from an important level, it is likely to continue in the same way until it hits the next level.

That simple, if it was rejected from an important resistance level, it is likely to continue its way down until it hits the next support level, likewise, if it was rejected from an important support level, well, it is likely to continue its way up until it hits the next resistance level.

You see what I mean?

Sometimes it gets tricky though…

When the market trades near an important level, we need to be extra patient because we need to make sure the market has been rejected from an important LT S&R…

Remember that when we talk about LT S&R levels we are actually talking about zones. So we need to define this zone in the short term charts so we know exactly at what levels we can start looking for trade opportunities.

Here is an example to illustrate this let scenario.

EURAUD Analysis

As you can see, the EURAUD is trading near a LT support level around 1.5036:

EURAUD Analysis

By only looking at the long term chart it is very difficult to determine whether it has been already rejected from that level or not.

In other words, we dont know yet if we should start looking for trade opportunities here.

For that reason, we need to look at the short term charts and try to determine that zone so we know exactly at what level we should start looking for trade opportunities.

And that’s what we are going to do:

EURAUD analysis

There you have it!

Now you can have a complete trading plan to trade the EURAUD.

  • If it breaks the upper green level (resistance), it will trigger a bullish market condition and only long opportunities will be in play. And you’ll have around 500 pips before the market hits the next level.
  • If it breaks the lower green level (support), it will trigger a bearish market condition, and only short opportunities will be in play. And you’ll have around 540 pips before the market hits the next LT level.

So you’ll have plenty of room to look for your trades.

Try to apply this methodology and you’ll see the results.

Your turn

What do you think about the way I analyze the market to determine what currency pairs to trade?

Are you currently trading or looking to trade the EURAUD?

What other currency pairs are you trading?

Please comment.

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Raul Lopez

I’ve been trading the markets for more than 15 years. I believe the best way to trade is by adapting to the market conditions. You can learn it too, join our community .


  • Henry

    Hi Raul
    As per Chad question, it would be interesting to hear where and why you would have placed your stop given the initial analysis. I had mine just below the most recent daily low. Although quite a way down for my comfort the profit was at slightly better than 2-1. As it happens because the move was driven by fundmentals I lowered my take profit and still came out ahead when the pair bounced back temporarily.

    • Raul Lopez

      Hey Henry, I’m extra cautious with breakout trades… in this case, I didnt take them because the market was trading at an important level, and as you can see, the market went back to trade inside the range…

      In this case I was waiting for a pullback and reaction at that important level after the breakout, but we didnt get that…

      HTH

  • Chad Hogan

    Raul,
    A bit of advice.. When price retraces back into the SF box, through the ST levels and back to the important daily level, as in the price action sell on CADJPY @ 92.390, would you take this trade? I didnt but now I wish I did..

    • Raul Lopez

      Hey Chad,

      When the market breaks the SF Box and then comes back to trade inside it, we need to update those level…

      Put it into perspective, if the market breaks through an important level, that level should stop the market from entering again into the SF Box, if its not able to do that, then it wasnt an important level after all, so we need to update them…

      Makes sense?

      Please let me know.

  • Chad Hogan

    Hi Raul,
    Hope all is well. Ive been waiting for EURAUD to show clear market direction and like Henry I thought the market had made up its mind but it has retreated back within the SF box. I never took the breakout as I considered the previous rejections of price on the daily and considered it to be an important level. Where would a logical place be to put your stop be if a buy stop is placed above the breakout high? I mean its over a hundred pips down to SF box support. Im finding this problem quite a bit lately.

    • Raul Lopez

      Hey Chad, I apologize for the late response… for some reason I have not been getting the alters when someone comments… I’ll get that fixed!

      Yep, we should never take breakouts of the SF box… in this case, the market broke through the resistance level, but then it came to trade inside the SF box again, so we need to get rid of that level and update them…

      My new resistance level is at 1.5364. And again, we need to wait for a breakout, then a retracement, etc.

  • Henry

    Hi Raul. Fab analysis. I had a order for above the sr level. At first it took off and i was in profit. However now its gone the opposite but i had a sl at the nearest low so still in the running. Did you trade this and whats your thinking now.
    Thanks

    • Raul Lopez

      No, I never take breakout trades when the market is trading near a long term level (blue level) because of the same reason, there is always a fierce battle between buyers and sellers at these levels, and that makes it easy for the market to behave like that…

      Now I have moved my upper resistance level to the previous high 1.5386 and I’m waiting again for a breakout then a confirmation to start trading this pair.

      Good luck!

  • Wojtek

    Raul, I was thinking last evening whether to enter long EURAUD but the confirmation was missing as per above. But about 1-2 am GMT it shot up over 100 pips! It’s not easy to win! What’s your update on this pair today?

    • Raul Lopez

      Hello Wojtek, I have moved my upper green level to the high of the previous swing 1.5386 and I’m waiting again for a breakout… that breakout apparently was fundamentally driven… so dont pay too much attention to it!

      • Wojtek

        Raul,
        I did enter this trade long last night at 1.5260 and got lucky I guess more than anything else. I took 54 pips profit today at 1.5314. I think this was what you’d call “intra box” trading, right? Basically trading between green ST S & R levels. I will be watching for a breakout around 1.5386 as you suggested.

  • Craig Hantke

    Raul, how do you determine the short term resistance/support zone? Still 2 recent touches?
    Also, if it does break the SR lines, how often does it retrace/retreat and go backwards for you? (I know you usually do a buy/sell stop 10 pips + spread).

    • Raul Lopez

      That’s right, 2 touches…

      I wouldnt take breakout trades here Craig, I’d wait for a retracement since it is trading at the SF box…

      • Craig Hantke

        do you wait until the 4 hour candle close? how to determine when you actually take a trade after it already breaks the ST S/R?

        Watching olympics??

        • Raul Lopez

          No, I usually trade off the 1H charts… so I wait for a retracement and see if I get a significant pattern off that level, if I dont get that pattern but the market still breaks the previous high/low I’d take that breakout (since we are already in a bullish/bearish condition).

          Not at the moment… what are you watching?

          • Craig Hantke

            Okay, I think I’m getting your strategy more.

            Hockey for sure! Canada vs Latvia – Go Canada! and watching some of USA vs Czech Rep.

          • Raul Lopez

            I’m glad you are getting it now…

            Good luck Craig! what’s the score?

          • Craig Hantke

            1-1 we need to take it up another level!

          • Raul Lopez

            Congrats… 2 – 1

  • tp

    I think it’s awesome. Raul, I am going to apply what you taught in my own trading. Thanks.

    • btkelly

      Raul, are the two green lines S/R lines on an hourly chart and what does the blue line represent please?

      • Raul Lopez

        That’s right, green levels are short term S&R levels and the blue levels are long term S&R levels (off the daily charts)…

        Take note that when you see the blue levels on the short term charts its not important where they are placed, because they are more like “zones”…

        Let me know if I answered your question…

    • Raul Lopez

      Sounds great… let me know how it goes.