Currency pairs are a lot like people -they have their own personalities!
During the last couple of months, I have discovered that one of the things that boost anyone’s trading performance is to learn the “personalities” of the pairs they are trading. When I refer to “personality”, I am referring to all the characteristics, patterns, behaviours and reactions that a certain pair usually exhibits.
You would be very surprised to know that pairs’ personalities are not very different from human personalities. Kendra C. from VeryWellMind, describes personality in the following way:
“Personality is made up of the characteristic patterns of thoughts, feelings, and behaviors that make a person unique. In addition to this, personality arises from within the individual and remains fairly consistent throughout life”.
Based on the previous definition, it is clear that once we know the personality of a person, we also can predict how that person will react to a given situation. Is this different for FOREX pairs? No, in fact, is quite the same. Once we have studied deeply how a certain currency pair behave or move, then we can predict its price action.
Our role as “analysts” (bear in mind that I am saying “analyst” and not trader), is to evaluate those distinctive patterns of a certain asset over time. Once we have discovered the skeleton of its personality, then we execute based on our research (and in that case we change our role from analyst to traders). It is not recommended to trade assets you barely know, and it is very irresponsible to do so!
The best profits come from trading pairs you already know, that's why you should always stick to 5 or 6 assets or forex pairs. Many newbies at the beginning are tempted to copy and paste trades from colleagues, friends or mentors. That's probably the worst thing you can do, as you would feel uncertainty the whole time after you place the position. Why? Simple. It is not your pair, it is not your strategy, it is not your belief. That's why I emphasise the importance of only trading the pairs you already know.
If you want to master currency personality traits, those are some of the questions you should start to answer:
- Which are the distinct attributes and behaviours that this pair has?
- Am I adapting my strategy to the personality of this pair? Or am I forcing a general strategy into a pair that does not behave equally to the rest?
- Am I adapting elements such as trade timing, entry and exit levels to the personality of the asset?
- Do I understand the market liquidity, trading hours and volume of a specific set of assets?
- How does this asset react to certain economic data?
- How does this pair behave during the week? Does this pair change its patterns during different trading sessions?...