How to Trade the EUR/USD Currency Pair

trading currency

We all know that the US Dollar USD) remains the dominant driver of global forex trading, appearing on one side of 87.6% of all daily trades throughout the world.

However, did you also know that the EUR/USD pairing (which also features the Euro) is the single most popular currency asset? Known colloquially as the ‘Fiber’, this accounted for a staggering 24% of total trades in 2019, marking an incremental increase from 23.1% three years earlier.

This pair is even more popular in the current climate, especially when you consider the relative weakness of the pound. But how can you successfully trade this pairing, and what are the most accessible and popular strategies?

Trading the EUR/USD – The Fundamentals

Before you trade this pair, you’ll need to adhere to some fundamental rules of forex trading. Here are a few generic tips to help you optimise your chances of achieving a profit:

  • 1. Manage Your Money Well: Let’s start with the basics; as your total starting capital for trading should never equate to an amount that’s more than you can afford to leave. This rule applies to both your deposit amount and the leverage that you’re willing to embrace, as it’s possible to lose a disproportionate amount of capital even when trading liquid assets like the EUR/USD. You should also quantify your risk per single trade, measuring your deposit against risk, reward and your wider trading strategy.
  • 2. Trade During Peak Volatility: As the most liquid forex asset, it’s relatively easy to buy and sell the EUR/USD pairing in real-time. As a result, it can be highly profitable to trade the asset during peak periods of volatility, such as the crossover period that exists between noon and 4pm GMT. During this period, both the London and New York Stock Exchanges are open, creating peak trading volumes and significant volatility for traders to capitalise on.
  • 3. Diversify Your Interests: Even if you’re just starting out as a forex trader (when it’s recommended to start out small and only scale your efforts in line with profitability and experience), you should probably trade a couple of major currencies. The key is to diversify your interests and minimise your level of market exposure relative to your investment, while constantly looking to evolve your trading activity incrementally over time.

What are the Best Trading Strategies for the EUR/USD?

While these guidelines are helpful, it’s also important to consider some precise strategies that enable you to leverage the EUR/USD pairing to your advantage. Here are three to keep in mind at all times:

  • 1. Buy or Sell the Pullback: Typically, the EUR/USD trend thrusts in both directions, and tends to carry the price from one level to another in what’s described as a positive feedback loop. However, this rapid movement typically fizzles out when the supply and demand equation changes, but you can use a ‘pullback’ strategy to capitalise in this counter trend shift. Here, you use analysis to identify significant support or resistant levels, which subsequently directs your decision to buy or sell in the future.
  • 2. Buy the Breakout and Sell the Breakdown: This pairing usually grinds back and forth within relatively confined boundaries, creating clarity for traders and well-defined trading ranges to target. By being patient during such periods of consolidation, you can create low-risk trade entry points that subsequently yield impressive returns when support (or resistance) eventually breaks. You’ll need solid technical analysis and discipline along with good timing to deploy this strategy successfully, while a keen sense of determinism can also provide help and reassurance.
  • 3. Enter Narrow Range Patterns: As we’ve already touched on, the EUR/USD pairing tends to rise or fall into significant barriers and then stagnate, creating narrow range price bars that minimise volatility over time. This period of consolidation can create a viable entry signal for a breakout or breakdown, so executing a trade at this time can minimise risk and introduce logical stop losses. This protects you in the event of a major or unexpected reversal, without overly compromising your eventual returns or profitability.

The Last Word

So, there you have it; our brief review of the popular EUR/USD currency pairing and how you can trade this asset successfully.

Ultimately, success depends on a number of fundamental factors and the deployment of a simple and effective strategy, with the three referenced above ideal for novice or inexperienced traders.

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