Why You Should Have a Preferred Market for Forex Trading

One of the biggest risks for those who venture into online trading, and especially Forex, is over-trading. Investing excessively is the quickest way to lose your capital and enter a vicious circle from which it is difficult to escape. Among the most useful "tools" to avoid this dangerous drift, an approach stands out that, given the incredible variety that characterizes trading, and especially Forex, may seem counterproductive at first glance. This approach consists of choosing a single market, specializing, and trading with it. In the case of Forex, a currency pair. Here are some valid reasons to have "a favorite pair".

Repetition Helps

First of all, a clarification is needed. Having a favorite pair and specializing in it does not mean completely ignoring other possibilities. This would go against the sacrosanct principle of investment diversification. It's simply a matter of specializing in one pair and trading mostly with that one. The others can be considered from a capital preservation perspective or can be the subject of attention when the preferred pair presents, for a variety of reasons, provisionally unfavorable trading conditions. That said, one of the reasons it's good to have a favorite pair and invest mostly with it is that... Repetition helps. It's a very old saying but it fits perfectly. Those who focus on one pair develop specific skills to get the most out of that pair. By trading day after day, you acquire a total awareness of the dynamics, such as to allow a probable implementation of profits. This mechanism is valid for all life situations, not just Forex Trading. The more you do something, the better you get at it. This principle is practically self-evident.

Helps Fight Over Trading

Over trading is a very big problem. When trading ceases to be an investment activity, albeit speculative, but becomes a kind of need, clarity - a prerequisite for effective trading action - is lost and so are the hopes of generating profits. Now, it is obvious that it is much easier to fall into over trading if you have a high familiarity with many pairs, rather than with only one or two. If the specialized trader notices that his favorite pair is going through a turbulent period, where trading becomes dangerous, he stops and waits for the waters to calm down. If the so-called "transversal" trader notices that one of the pairs he trades is in a phase of instability, he simply changes pairs. He changes it because, very simply, having familiarity with all of them, he can do it. Here, over trading is a drift, unfortunately, within reach.

Helps Fight Over Analysis

Over analysis is another very dangerous drift. It occurs when the trader lingers a lot, too much, on technical analysis. When he puts himself in the spasmodic search for signals, when he uses many indicators. Those who fall into over analysis not only lose a lot of time, but also their compass. Now, what type of trader is most at risk of entering the cycle of over analysis? Exactly, those who are familiar with many pairs, who do not focus on a particular pair. The reason is simple: each pair reacts to particular indicators, so trading with many pairs at the same time already increases the number of indicators to be used. On the other hand, those who specialize in one pair are more focused on their goal. Not only that, they have developed a know-how of techniques, approaches, strategies and methods of analysis that they repeat pedantically, without adding more fuel to the fire.

Improves Risk Management

Finally, there is another aspect to consider. Those who trade with many pairs are exposed to significant risks. For them, it is really difficult to engage in risk management in a consistent manner. The reason for this is not intuitive but nonetheless rests on solid technical grounds. The reason can be found in correlations. The pairs, even if this is not immediately visible to the naked eye, are correlated with each other. If pair X rises, it is likely that pair Y falls. Those who trade with many pairs and do not know these correlations in an almost perfect way are doomed to lose. Since correlations are a very difficult subject, it is therefore best to cut the Gordian knot and specialize in a single pair. Also because it is the simplest way, as well as the most profitable one. In short, choose a pair and make it your own, learn its secrets, dynamics, mechanisms and hone your skills in it.