How to Choose a Currency Pair – The Complete Guide to Avoiding Losses in FX
Choosing a currency pair is an important decision that has a big impact on your success in FX trading. Many beginners wonder, “Which currency pair should I start with?” Picking the right pair can improve both the efficiency and the success rate of your trading. In this article, I explain the key points of choosing currency pairs that are useful for beginners and experienced traders alike, and help you find the best pair for your trading style. Let’s take a detailed look at the selection criteria every FX trader should know, such as tight spreads, price action characteristics, and trading hours.
What Is a Currency Pair?
A currency pair is the combination of two currencies that are bought and sold in FX trading. For example, with “USD/JPY (US dollar/Japanese yen),” you trade by buying US dollars and selling yen (or buying yen and selling US dollars).
Currency pairs are written in the format “base currency + quote currency,” and you buy the former and sell the latter (or sell the former and buy the latter). In the case of USD/JPY, the US dollar is the base currency and the yen is the quote currency.
This article explains how to choose currency pairs for FX trading.
Major Currency Pairs and Their Characteristics
Currency pairs fall broadly into the following three categories:
1. Major Pairs
Pairs of major currencies that include the US dollar. They have the highest trading volume and the highest liquidity.
- USD/JPY (US dollar/Japanese yen): A popular pair among beginners. Its price action is relatively calm, and it is easy to understand for Japanese traders.
- EUR/USD (euro/US dollar): The most traded currency pair in the world. Tight spreads and plenty of information.
- GBP/USD (British pound/US dollar): Moves sharply and is suited to experienced traders. On the other hand, it offers the chance of large profits.
- USD/CHF (US dollar/Swiss franc): Tends to move relatively steadily.
2. Cross Currency Pairs
Pairs between major currencies that do not include the US dollar.
- EUR/JPY (euro/Japanese yen): Moves a lot and tends to form clear trends.
- GBP/JPY (British pound/Japanese yen): Moves extremely sharply, and its high volatility provides many profit opportunities. It is sometimes described as a roller coaster. It also works well with technical analysis and tends to form clear trends.
- AUD/JPY (Australian dollar/Japanese yen): Easily influenced by risk appetite.
3. Exotic Pairs
Combinations of an emerging-market currency and a major currency.
- USD/TRY (US dollar/Turkish lira): Wide spreads and low liquidity.
- USD/ZAR (US dollar/South African rand): Its price action is often hard to read.
How to Choose Currency Pairs Suited to Day Trading
When you start FX trading, one of the first choices you face is “which currency pair to trade.” There are dozens of currency pairs in the world, and it can be hard for beginners to decide which one to pick. This article explains how to choose the right currency pair, assuming day trading based on technical analysis.
In the day trading that this site mainly covers, trades are based on technical analysis. For that reason, it is important to choose currency pairs that meet the following conditions:
1. High Liquidity
With high liquidity, orders get filled quickly and the risk of slippage is reduced. Timing matters in day trading, so it is wise to choose major pairs or the main cross currency pairs.
Recommended pairs: USD/JPY, EUR/USD, GBP/USD
2. Tight Spreads
In day trading you often aim for small price ranges, so choosing pairs with tight spreads directly helps you secure profits.
Recommended pairs: EUR/USD, USD/JPY
3. Clear Price Action Patterns
What matters in technical analysis is how reliably the patterns on the chart repeat. Some currency pairs tend to follow technical rules more closely.
Recommended pairs: USD/JPY, EUR/JPY, GBP/JPY
4. Pairs That Are Active During Your Trading Hours
The FX market runs 24 hours a day, but which pairs are active depends on the time of day. It is important to choose pairs that match your own trading hours.
- Asian session (roughly 9:00 am–5:00 pm JST / 00:00–08:00 UTC): USD/JPY, AUD/USD
- European session (roughly 4:00 pm–1:00 am the next day JST / 07:00–16:00 UTC): EUR/USD, GBP/USD, GBP/JPY
- New York session (roughly 9:00 pm–6:00 am the next day JST / 12:00–21:00 UTC): USD/CAD, EUR/USD
Recommended Currency Pairs for Beginners
If you are trying FX for the first time, I recommend the following pairs:
1. USD/JPY (US dollar/Japanese yen, a.k.a. “dollar-yen”)
Advantages:
- Japanese traders have an intuitive sense of the yen’s value, so the price action is easy to understand
- Relatively stable price action, so technical analysis tends to work well
- Active trading even during the daytime in Japan
Cautions:
- It can swing wildly around major releases such as Japanese policy announcements or the US NFP (nonfarm payrolls)
2. EUR/USD (euro/US dollar, a.k.a. “euro-dollar”)
Advantages:
- The highest trading volume in the world and the tightest spreads
- Works well with technical analysis
- Plenty of information, making it easy to analyze
Cautions:
- It becomes active from late night to early morning Japan time, so watch your daily rhythm
3. GBP/JPY (British pound/Japanese yen, a.k.a. “pound-yen”)
Advantages:
- High volatility lets you aim for a lot of room to run, so profit opportunities are plentiful
- Technical patterns appear readily, and trends show up clearly
- Price action is especially active during the European session, which overlaps with prime time in Japan
- The charts are clean, and trend lines and support/resistance tend to work well
Cautions:
- Because it moves so sharply, proper risk management is essential
- It can make unexpected moves around UK economic indicators and policy announcements
- Spreads are wider than USD/JPY or EUR/USD, so keep an eye on trading costs
Spreads are explained in detail in the following article.
Combining Currency Pairs and Their Correlations
When trading multiple currency pairs, you need to pay attention to how they correlate. For example:
- Pairs with high positive correlation: EUR/USD and GBP/USD
Holding positions in the same direction on both may double your risk. - Pairs with high negative correlation: EUR/USD and USD/CHF
They tend to move in opposite directions, so you may gain a diversification effect. - Pairs with shifting correlation: GBP/JPY and EUR/JPY
They are basically positively correlated, but the degree of correlation changes with UK and eurozone policy and economic conditions. Be careful when holding positions in both.
In day trading, it is usually efficient to narrow your focus to one or two currency pairs. Beginners in particular should first get used to rule-based trading on a single pair.
Choosing Currency Pairs to Match When You Trade
In day trading, the best currency pair changes depending on the hours you trade. For example:
- Morning people: USD/JPY and AUD/JPY, which are active in the Asian session, are recommended
- Night owls: EUR/USD, GBP/USD and GBP/JPY, which are active in the European and US sessions, are recommended
Also, related currency pairs tend to move sharply around each market’s major data releases. For example, dollar pairs become very active around the US NFP (nonfarm payrolls) release. GBP/JPY in particular reacts to economic indicators from both the UK and Japan, so it offers many opportunities to trade the volatility around data releases.
Summary: Find the Currency Pair That Suits You
Your choice of currency pair has a big impact on your success in FX trading. Especially for day trading with technical analysis, keep the following points in mind when choosing:
- Choose pairs with high liquidity and tight spreads
- Choose pairs that are active during your trading hours
- Choose pairs that work well with technical analysis
- Start by focusing on one pair and get used to rule-based trading
This site mainly covers day trading based on technical analysis, and I will use many chart examples from GBP/JPY, the pair I especially like to trade. GBP/JPY moves so wildly that it is called a “roller coaster,” but that is exactly why it lets you enjoy the real appeal of technical analysis. Next time, I will explain “What Is a Spread? The Truth About Fees You Need to Know.” Stay tuned!
