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MadMarketScientist

Best Forex Pairs for Day Trading?

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I'm curious what people think are the best forex pairs to day trade. Swing trading is a different story, when you have wider spreads it's less of a big deal, but you pay 8 pips of spread and try to daytrade and it's likely not to end well.

 

There's clearly some like:

 

EURUSD

GBPUSD

USDJPY

EURJPY

 

That all tend to have workable spreads - 1 to 3 pips seems like at most brokers right?

 

Are these all or do you like to consider other pairs when you daytrade?

 

MMS

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Rather that trade the same instruments or pairs day in and day out we use the new more powerful RadarScreen in TS 9.0 to scan for time of day normalized local price volatility in Fx pairs as shown below and commercial money commitment as well as local price volatility in futures as also shown below. "Trade What's Hot and Don't Trade What's Not."

 

The numbers shown are time of day normalized percentages of normal activity for that indicator and that instrument which make it easy to spot out of sequence price volatility or commercial cash flow. Today Gold, Corn and the Euro have been at the top of the list and there has been out of sequence action in all 3.

 

Scan and ranking by local price volatility for Fx pairs

 

tpt229.jpg

 

Scan and ranking by local price volatility and commercial money commitment for some popular futures

The red text is of no significance other than it is the 10 futures contracts that we trade

 

tpt230a.jpg

 

 

UrmaBlume

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It depends what your criteria is MMS.

 

Is it "smallest spreads"

Is it "greatest move per spread"

Is it "current hot markets"

Is it "which ones respect S&R and which ones are tails on a dog"

Is it "what works with my type of strategy"

Is it "which ones can be grouped into similar strategies"

 

I like "respect for S&R" a lot so it's majors for me as with the crosses you'll get screwed up if you're not watching mum and dad. I also like a particular style. I can trade exactly that style on EU and AU. And I can trade a mod on GU and a slightly different mod on UJ. All in all the 4 pairs average 2 really nice setups a day between 6am gmt and 10am gmt (the times when I'm willing to be around consistently) so they're enough.

 

In my case I add my favourite bitch, HSI, for another couple of setups a day, half of them overlapping with my preferred forex times. Very similar setups to forex but hsi is on much shorter timeframes than fx because that bitch is greyhound :)

 

 

 

PS. You've got a great momo pair in EJ but what about GJ. Most of the brits seem to love that one.

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Thanks for suggestions/input.

 

My thoughts on the GJ though is the spread is too high to successfully daytrade as a pair you'd use everyday. Of course would depend on the targets/stops used but I hate being in the whole 7 pips let's say before the trade is a second old. Even if you use targets like 30 or 40 pips on a day trade you are giving back 7 of those so you need an above average win/loss percentage to compensate for that on every trade I think.

 

MMS

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It depends on what your interpretation of "day trading" is. This is different for everybody.

 

I think you'd be nutz to ignore something like AUD/USD when it's in the mother of all trends and at all time highs, just because of a pip or two (well, unless you are trying to pick tops & failures in trends, good luck with that).

 

Some brokers are worse than others though. I accidentally clicked on the wrong area of my Forex Factory calendar today and they have some "Market" tab that lets you pull up the spreads from various brokers to compare them (see lower RHS table). The ones with the WORST spreads on a given pair seem to have N/A next to them. Some brokers play you low on the majors, then hit you on the crosses. My broker gives me a great all around balance. Thanks to competition most of the ones worth using are pretty tight now.

 

More than one good FX educator has stated that if your spreads are what you are worried about, then your system probably isn't all that good. At one point I was so close to price with an arb scalp system (long since abandoned) that getting an extra half pip was going to be a big deal. Then I grew up :rofl:

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Gotta disagree on the person you mention who says if spread is an issue it's your strategy. Sorry that one doesn't make sense to me in the real world. I think it sounds like a good "boast" as in, their strategy is so good spread won't matter and if you worry about it.....yours is not. Sounds more like ad copy to me.

 

Certain markets on a daytrading basis - we're not talking swing trading or bigger multi-day moves -- only go so far in a given day. Their Average True Range may be xxx amount, and when it swings up and down perhaps it travels a certain xx pips.

 

For example, let's say the GBPJPY travels 130 pips a day on average -- and the swings tend to be 35 pips each general move up or down during the day. There's no way anyone can buy tops or bottoms so of that 35 pip swing maybe you can, if you catch it right get 20 - 25 pips of it. Problem is, you could be paying 8 pips spread.

 

Now, if the EURUSD had the same 130 pip range, the same 35 pip move per swing, then clearly I'd be better off trading it for the 20-25 pip swings when my costs are only 1 or 2 pips.

 

I truly believe that spreads DO matter quite a bit -- on the daytrade side. Swing trading? Nah, I wouldn't worry about it when I'm going for 100+ pips. Daytrading? Yes, definitely if I'm going for 15 - 35 pips lets say on a trade.

 

MMS

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Urma

Are those headings (calculations) built into the new version 9 or are they proprietary?

Thanks

 

The calculations are our own work. The numbers represent time of day normalized values expressed in percentages of normal. This makes it easy to compare such inputs as price volatility and commercial cash participation. between instruments.

 

A stock whose price volatility is 70% of what is normal for an hour's trade at that particluar time of day is in strong contrast to onw that is showing twice (200%) of normal volatility at that time of day and thus an indication of that is where the action is.

 

For these screens we use percentages of normal price volatility, volatility of net new commercial trade, commercial cash commitment and the balance/imbalance of trade.

 

Some of these same indications are also displayed on our Market Heads-Up Display - HUD as shown below.

 

 

tpt235.jpg

 

 

cheers

 

UB

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Having originally trained to trade stocks, I find FX traders have a very 'relaxed' approach to spread compared to stock traders, who will try to avoid paying it when they can (by e.g. joining the market rather than taking what's offered). However, if you calculate position size with % max risk per trade, you're effectively using a compound interest method to build your account (particularly so if/when your broker adopts the 'any size' fractional lot model). An extra 4 pips spread could make a large difference to your account balance over time, unless your high spread trades are consistenly much more profitable than your trades on low spread pairs. Given that high spread pairs also tend to be more volatile (which may reduce the success rate), I'd suggest you'd want to ensure that is undoubtedly the case.

 

Max

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It's interesting because in a former life I had the opportunity to work with a lot of traders - and examine their results.

 

It amazed me how often people actually traded profitably if you were able to remove commissions and/or spread costs.

 

To me this shows how often people do NOT realize just how much commissions/spreads and also slippage factor into their results.

 

It's why so many do backtesting in a perfect world scenario - usually assuming perfect fills like no slip on stop orders, and 100% fills on limit orders. And also forget to take out commissions/spreads.

 

Literally that can be the whole difference between success/failure but those costs are real.

 

MMS

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Yes, the costs are very real - take Cable. The FXDD demo account (which happens to be the only 'straight spread' feed I have) currently quotes a 4 pip spread on Cable, which means $40 to buy one standard lot. IB UK's highest commission (they give volume discounts) appears to be $2 per $100,000, minimum $2.50, but their spread is currently often 1 pip on Cable. At 1 pip, buying 1 lot would cost $12.50 rather than $40. The difference is more on EURGBP - a 5 pip spread currently on FXDD is $50 per lot, vs. same $12.50 (or maybe less as IB spread is currently sometimes<1 pip). That's $37.50 more for just one entry, why would you want to pay that? Even if you do get good fills and service, you'd have to be doing very much better from the big spread broker to justify using them.

 

Max

Edited by maxr

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Thanks for suggestions/input.

 

My thoughts on the GJ though is the spread is too high to successfully daytrade as a pair you'd use everyday. Of course would depend on the targets/stops used but I hate being in the whole 7 pips let's say before the trade is a second old. Even if you use targets like 30 or 40 pips on a day trade you are giving back 7 of those so you need an above average win/loss percentage to compensate for that on every trade I think.

 

MMS

 

As I type this I have 2.6 spread on G/J. Non ECN, no commissions.

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Thanks for suggestions/input.

 

My thoughts on the GJ though is the spread is too high to successfully daytrade as a pair you'd use everyday. Of course would depend on the targets/stops used but I hate being in the whole 7 pips let's say before the trade is a second old. Even if you use targets like 30 or 40 pips on a day trade you are giving back 7 of those so you need an above average win/loss percentage to compensate for that on every trade I think.

 

MMS

 

As I type this my spread on GBP/JPY is 2.7, no commission.

 

Chris

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That is a good spread - though I wonder if it is just occasionally there -- does it average 2.7 or does it range from x to y pips? That would be what matters most -- at any rate, if you can get the spread to stay narrow throughout trading on any pair that brings it more into the realm of daytrading even though I still think more people would be successful with forex if they didn't focus on daytrading as much.

 

MMS

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That is a good spread - though I wonder if it is just occasionally there -- does it average 2.7 or does it range from x to y pips? That would be what matters most -- at any rate, if you can get the spread to stay narrow throughout trading on any pair that brings it more into the realm of daytrading even though I still think more people would be successful with forex if they didn't focus on daytrading as much.

 

MMS

 

Avg 2.5 to 3.8 depending on liquidity. 1 minute pre/post news it really jumps.

I have been using them just over 5 years now.

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Oh,

No ability to edit post immediately...

I wanted to add that with g/j one usually knows rather soon if one's analysis was correct

:)

 

There are also certain times of day when opportunities present themselves ie:

Frankfurt Open, London Open, New York Open, and NYSE Open ( 09:30 EST ).

At 11:30 EST one should look for a reversal, except of course if there was a huge news event.

 

Another thing I like about g/j is that it seems to be a proxy for "risk aversion".

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Oanda.

 

This is not meant as a plug, I just really like oanda.

I don't know if you live in the States, but you are probably aware of the new

restrictions imposed on U.S. Traders. Repatriation of foreign broker accts, which means

no hedging and FIFO. As well as 50:1 margin max.

Oanda has never allowed Hedging ( it's a very simple process to open a "sub acct" with them if one wishes to Hedge. Hedging has never been part of my trading style, however,

If I am in a long term trade, for me that's about a week, Lol I occasionally scalp (Hedge) the retraces ). As for FIFO, it must be something to do with the way they do their accounting. If I have say 3 long positions on g/j, I can close anyone of them any time I like.

 

Now this part is just personal preference. Oanda's platform is Web/Java based. Nothing to down load. Trade from any PC ( even Linux ) anywhere you have internet.

Many, many pairs, Gold and Silver. Their charts are very clean and sharp, with Time Frames from 1 Second to 1 Day ( I occasionally go as low as 30 second ). Adjustable font size ( a minor beef I have about MT4 ).

Lightning fast execution.

They don't have Micros, Minis, Standard, or Maxis. With any acct you can scale your position size. ie: 100 units = 1 cent a pip ( U.S. ), 1000 units = 10 cents, 10,000 units = $1.00 a pip, and so on. You can also scale out of a position the same way.

I have never had liquidity or "fill" problems, though the largest position I have ever held with them is 500,000 units. I personally know someone who has opened positions with them of 15 Million units. ( this is not rumor or hearsay, we try to get together a few weeks a year and trade together, I saw it ).

 

The down side:

They don't offer a lot of Indicators, and because it's Java you can't write custom Indicators ( that I know of ).

Can't Trade the News. As I mentioned in an earlier post, the spreads widen dramaticly for about 30 seconds pre and post News events.

( Honestly, a couple of years ago a good News trader taught me how to trade the News.

I found the return did not justify the stress level ).

 

I also have 2 MT4 accts, not very large, just trade a dollar or two a pip. I had a friend write a couple of custom indicators for me in MT4 code, so I watch them for setups, them switch to Oanda and use Price Action for entries.

 

Chris

 

 

EDIT:

Oh, their mobile platform ( ie: smart phone ) leaves a little to be desired.

Edited by Mysticforex

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Thanks for the writeup on Oanda -- They've been the most consistently positive forex broker with reviews I've seen. I know some people as well who swear by them for the exact reasons you mention. I think the newbies and ultra speculators sometimes don't like the restrictions or fewer features but it's interesting that in the last report released by the regulators Oanda traders had the highest success rate of what was reported. Interesting anyway.

 

Would agree that the platform is limited but nothing says you can't analyze on another platform and then place your trade there.

 

Thanks for the feedback.

 

MMS

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