December 16, 2009
The EUR/GBP Forex Pair - Why It's Perfect For Day Traders
When I first started trading the forex markets I mainly stuck to the EUR/USD, GBP/USD and USD/JPY pairs. However I soon discovered the EUR/GBP pair and quickly came to the conclusion that this is one of the easiest pairs to trade, particularly from a day trading point of view. The reason why I say that is simply because it's very predictable.
When you start watching the EUR/GBP pair on a daily basis you will soon discover that it will often move towards pivot points and key support and resistance levels before reversing in the opposite direction, which makes it fairly easy to trade.
Due to the fact that it isn't very volatile (the average daily range as documented here is around 80 points) you know that if it moves significantly more than usual, it is highly likely to reverse at some point, particularly if it reaches a major support or resistance level.
So you can either trade around these key levels or you can add one or two indicators to help you increase your success rate even further.
For example in the chart below I've added a stochastic indicator (14, 3, 5 - exponential) and as you can see, if you trade simple divergence patterns around key levels (ie when the price is making new lows but the stochastic is failing to make new lows, or vice versa), there are some decent profits to be made.
This chart is from yesterday and it's a perfect example of how you can trade around key support levels. You can see that the price fell all the way down to the second support line (S2), which is very unusual in itself, particularly as it was still early in the trading session.
However this was an excellent opportunity to go long because after coming very close to this second support line the price turned upwards, the stochastic crossed upwards, and there was a clear divergence pattern on this indicator as well.
Furthermore after reversing to the upside it then went on to climb all the way back up to the first support line (S1) which would have been a natural point to exit your position. Alternatively you could have closed half the position half way between your entry point and S1, and try and target S1 with the second half of your position.
Either way this would have been an excellent trading opportunity, and the good news is that they occur regularly on this particular currency pair. Here's another example from the day before, on Monday:
You can see that the price fell back down towards the pivot point before reversing upwards again, and the fact that the stochastic failed to make a new low and crossed upwards was an excellent signal to go long. It didn't move all the way to the next resistance level this time but it was still good for around 20 points.
So the point is that if you're looking to become a forex day trader, it's a good idea to start with the EUR/GBP pair because it's very predictable and conforms very well to pivot points and areas of support and resistance.