How Many Currency Pairs Should You Trade?


Happy Friday!

This week’s question comes from Ekaterina, who asks:

I was wondering what you would advise to someone struggling with consistency – to trade only one currency pair and focus on it, or look at a few pairs at the same time for more opportunities?

The plethora of currency pairs the Forex market offers is certainly an attraction for many. With over 100 pairs including crosses and exotics, the opportunities seem almost endless.

But too much of a good thing can be bad, especially for the struggling trader.

For instance, not only are the majority of those 100 pairs too illiquid and volatile to trade, but it’s far too much for one trader to handle, especially one just starting out.

At the same time, focusing on one or two pairs can get you in trouble. If the idea is to take the very best “A+” setups, then one or two pairs just isn’t going to be enough.

You’ll quickly find yourself bending the rules just to be in a trade.

The good news is there’s a simple way to handle this dilemma.

Let’s begin.

Two Schools of Thought

There are two schools of thought when it comes to how many currency pairs one should trade.

The first is to focus on one at a time. The idea is that by focusing all of your energy on that one pairing, you’re more likely to develop a familiarity with it and thus stand a greater chance of profiting over time.

The second approach is to use a basket of currency pairs. This can range anywhere from 5 to 10 or even a couple dozen.

By doing this, you open yourself up to more quality opportunities throughout the month.

So which is best?

For those familiar with the way I think and teach, you can probably guess what I’m about to say, and that is that it just depends on your individual style.

Finding your groove in any financial market has more to do with your personality and individual needs than you may realize.

But I’m going to break the mold today and say that if you’re trading the higher time frames and focusing on just one or two pairs, you’re making things harder than they need to be.

With that out of the way, let’s get down to the nitty-gritty.

How many is too many?

For the beginning Forex trader or anyone still struggling, anything over 10 pairs is too many in my opinion. You may be able to stretch that to 12 or even 15, but anything above 10 and things can become overwhelming in a hurry.

You see, if you’re still struggling, your primary focus should be on the process, not the profits.

Trying to make money should not be your number one priority.

Things like developing patience, learning strategies that fit your personality and taking notes on how the market ebbs and flows should be at the top of your list.

If you try to trade too many pairs during this time of learning, you’re going to stretch yourself too thin.

Instead of learning about the market, strategies and concepts, you’ll be running around like a chicken with its head cut off trying to annotate too many charts.

Trading profits don’t come from finding setups. They are the byproduct of the process, and you’ll struggle to learn that process if you’re spending your days chasing 30 different currency pairs.

How few is too few?

Let’s go back to that first school of thought for a moment – the one that suggests focusing on one or two pairings.

The idea here is to become familiar with one or two markets at a time. In this way, performing any analysis will be less demanding, and you can take things a bit slower.

And I get it. In theory, it all makes sense.

But while this approach may work for someone day trading the 5-minute chart, it won’t do you any favors if you’re using the higher time frames.

Here’s why…

Let’s imagine for a moment that you’ve chosen to focus your efforts on the EURUSD. If you’re only trading the 4-hour and daily charts – the way I trade and teach – there will only be 5 daily candles and 30 4-hour candles each week.

That may sound like plenty until you realize that a high-quality setup may only come around once a month on any given currency pair. And that’s if you’re lucky.

So you could be waiting days or even weeks before you find a setup worth the risk.

Even the most seasoned trader would struggle to wait that long much less a beginner.

To take that one step further, I always suggest that beginning traders stick to the daily time frame before testing the waters on the 4-hour chart. In that case, you’re stuck with just five candles each week.

All of this leads to one inevitable conclusion – you’re going to overtrade.

That isn’t just my opinion, by the way. I haven’t met a single trader who uses the higher time frames and focuses on one or two currency pairs and doesn’t overtrade.

If I Started Over Today...

If I jumped in a time machine and went back to 2007 but still had the knowledge I have today, what would I do?

First off, I wouldn’t focus on one or two or even three currency pairs. There just aren’t enough opportunities, and I certainly wouldn’t have the patience and discipline to make that work.

Instead, I’d focus on 5 to 10 currency pairs. These would include most of the majors and perhaps a few yen crosses.

Why the Japanese yen?

I happen to like the way pairs like the GBPJPY, AUDJPY, and NZDJPY move. Not all the time, of course, but that group does tend to produce one or two quality setups each month.

Here is how I’d break everything down:

Pairs I would trade…

Currency Pair Countries Currency Name
EUR/USD Eurozone / United States Euro / US dollar
USD/JPY United States / Japan US dollar / Japanese yen
GBP/USD United Kingdom / United States British pound / US dollar
AUD/USD Australia / United States Australia dollar / US dollar
NZD/USD New Zealand / United States New Zealand dollar / US dollar
GBP/JPY United Kingdom / Japan British pound / Japanese yen
AUD/JPY Australia / Japan Australia dollar / Japanese yen
NZD/JPY New Zealand / Japan New Zealand dollar / Japanese yen

Note that I left the USDCHF and USDCAD off of this list. While I do occasionally comment on these two, they have been tough to read much less trade over the years.

In fact, the Canadian dollar (CAD) is a currency I’d stay away from in the beginning. The CAD pairs are often more choppy and volatile than others, which creates an unnecessary challenge for the beginner.

Pairs I would avoid…

As mentioned above, I’d stay clear of the Canadian dollar if I were just starting out. I would also avoid other crosses such as the EURAUD, EURNZD, GBPAUD, GBPNZD, etc.

I won’t list every currency pair because frankly there are just too many.

As for any exotic currency pairs, I’d avoid these like the plague. If you’re interested in learning about these and other pairs, I put together a comprehensive lesson here.

Final Words

If you’re just starting out, try to focus on 5 to 10 currency pairs. This will give you a few quality opportunities each month without it becoming overwhelming.

By maintaining a list this size, you’ll have more time to study and learn the process of becoming successful. It will also be infinitely easier to put the things you learn into practice.

You may want to avoid the Canadian dollar and other crosses such as the EURAUD, EURNZD, GBPAUD, and GBPNZD. These pairings can be relatively choppy, making your job that much harder.

Last but not least, the exotics are better left untouched as far as I’m concerned. After more than a decade in the Forex market, I still only trade 22 currency pairs, none of which include an exotic currency.

Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

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