Choosing The Pairs To Trade

Forex Made Simple

Choosing the pairs to trade was a natural sequel to the “Market Hours” story.

After deciding “when” to trade, a found “what” to trade! More like the monkey would do, rather than the engineer… isn’t it? 😉

Anyway… Back in 2005, when my adventure started, the EUR/USD pair was commanding 50% of the whole Forex market. Probably it’s the same nowadays…

The decision to follow it, though, didn’t come naturally. What today would seem a no-brainer, for the “novice” engineer it wasn’t!

I just wanted to experiment with EVERYTHING… And since I was in “London time”, I started with the forbidden apple… GBP/JPY!

Man, oh man… was it a wild ride or what, every single time I insisted to try it? Once again, we learn making mistakes… and lots of them!

Today the Model T Forex trading System has all its parameters optimized for trading the EUR/USD. There’s nothing holding back the possibilities, though, to trade ANYTHING else. We just have to adjust parameters, after extensive backtestings. That’s all there is…

 

Great Times

On my research to reach the “perfect” solution, I developed, as a diligent engineer that I am, a trading system that combined EUR/USD and GBP/USD, at first.

I started noticing (remember, I’m NOT a professional. So, if you knew this stuff from like “always”, for me it was new) that, during normal trading hours and no “news” on the horizon, both pairs were behaving in “stepping-tandem”… the best definition I could come up with.

In other words, both were usually synchronized on the daily charts. In shorter time frames, though, they were behaving in “steps”

Let’s take the following scenario to illustrate, as a simple example, what was frequently going on. The “steps” movements were pretty much like this:

  • Let’s take the 15 min EUR/USD and GBP/USD charts;
  • While the EUR/USD was moving up for 3 or 4 candles, for instance, the GBP/USD was standing still, at the stop-light, waiting for its turn to rise.
  • Then it was the EUR/USD turn to stop, and wait for the GBP/USD to step up the ladder itself.

Very interesting behavior, usually during off-peak hours, showing, in a sense, the perfect coordination between high-stake traders… i.e., the “smart money”. “Let’s profit with one movement FIRST, and with the other LATER!”

Fair enough…

Most people, though, NEVER paid attention to the related… EUR/GBP pair (the “smart money” did, of course!). Among those “most people”, many were Forex “gurus”, despising a pair with short daily ATR, and “relatively” high spreads (compared with the ATR).

Well, I’m certainly not in the “smart money team”… but I paid attention!

Why? For start, because I’m an engineer, and for engineers 2 + 2 = 4!

If the EUR/USD rises for 3 candles AND, at the same time the GBP/USD doesn’tMATHEMATICALLY the EUR/GBP rises for 3 candles!

And the 15 min EUR/GBP charts were a dream come true for quite some time… roughly between 2008 and 2010!

The Model T Forex Trading System was designed around both EUR/USD and EUR/GBP.

As usual, things change. That short EUR/GBP daily ATR was enough to screw things up a little bit, the moment Europe started screwing up things a little bit! 😉

And then came GB to, on top of that, screw things up a little bit more… and the whole enchilada became a MESS!

Well… not really, but the scenario didn’t give much room for the Model T to continue to produce GREAT results on EUR/GBP… EUR/USD was more consistent, and that’s what we’re still trading nowadays!

What about the future? We’ll see… time will tell!

Thanks for watching…

 

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