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.

EUR_GBP1.png

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:

EUR_GBP2.png

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.

 

 

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4 Comments on The EUR/GBP Forex Pair - Why It's Perfect For Day Traders »

December 16, 2009

Louis Ferreira @ 3:24 pm:

Dear Sir,

Please tell me if it will benefit me more if I use a Stoch 14/7/3 instead of 14/3/5 and if not the reason why not?
I am new at this and still learning and any info re the setting up of Oscillators or SMA etc. will be appreciated?
I like short term trades daily and only trade EUR/USD and GBP/USD.
Any info will be appreciated
Thanks
Louis Ferreira
South Africa

george judd rowley @ 4:02 pm:

thanks james for the idea, sounds good i will give it a go why not , how many pips a wk are you averiging?, should be good for 50 or so, any way all the best for xma to you and your family in sunny england, ha ha, best regards Judd.

pat osifo @ 7:17 pm:

thanks mr James as you well know I am new and still trying to make headway. I will give it a very hard look. Thanks again.

December 19, 2009

Sarah Gannon @ 5:44 pm:

thanks.. curious can you please tell me did you create the support lines.. or do you have an indicator to do that? that is the most important help i need . finding support resistance.. when i use fib on daily and 4 hour takes so long and i am usually exhuasted and confused by it all as the support resistance is never exact. appreciate any insight you can give on that… Sincerely Sarah

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