Prop traders are the elite in the trading game on Forex. They do this for a living and their gains are consistently way better than with any treasury note, saving account interest, and even mutual funds investment. If you are not new to Forex you have probably heard about the 99% of traders that breakeven or lose their accounts on Forex. The 1% that consistently win know what they are doing and proprietary traders are the top 10% of that group. When you are starting, it is almost certain you are trading on the EUR/USD currency pair. You are not aware of what is underneath the EUR/USD nice clothes. Here is what a prop trader by the name of VP from the Maverick FX prop company team has to say about this.
This is the most traded currency pair on Forex. Prop companies at its core are a team of elite traders that collaborate and excel at capturing the profits out of this market. They discuss what is going on, what is the best course of action and they release the report or a signal. The signal serves to other traders as to what is estimated to happen with a specific forex asset in a specified timeframe. More often than not, these signals are correct. As per their words, the EUR/USD pair is mostly avoided in their signals.
The 99% group we have mentioned above is trading the EUR/USD, the one that loses or breakeven at best in the long term. EUR/USD is also the most popular pair to start with. According to prop traders, trading with this pair is like having an affair with a celebrity. You will get burnt at the end. Before we move on with reasons, let’s understand what made prop traders to this position. It starts with a concept, a trading theory, strategy, indicator, tool, or method. All this is tested in different ways, mostly through practical backtesting and forward testing on various assets and timeframes.
Based on this data a consensus among top traders is made and can be adopted as a viable option trader can use to make consistent results. This has been done for thousands of indicators and theories, they know what works best to date. It turns out they are doing the opposite of what the 99% are doing, and it makes sense. What is even more interesting is the internet is full of popular “tips” majority of traders listen and become the 99% group. As you may presume, prop traders do not follow these tips.
Top 5 most traded pairs are the EUR/USD, USD/JPY, GBP/USD, AUD/USD, and USD/CAD. The EUR/USD cap is almost one quarter on the Forex. By looking at these pairs, you can notice they all have one in common, the US Dollar. Is this an issue? Prop traders say yes. But why the EUR/USD is the pair of choice for new traders?
This currency pair is often “offered” to them first, so they start trading exclusively on it. Also, all the rest of the popular tools are promoted to them as something that works. At a few busted accounts they either give up or, if they are open-minded and willing, continue to search out new ways of trading.
Beginner traders think they can get good at one before trying another. It is a common misconception that currency pairs all have a special way of price action. Apart from measured volatility specifics, price movements on every pair do not have any character! GBP/USD can have very calm periods, choppy and calm, volatile and uniform, sideways movement, spikes and it happens in cycles. The EUR/USD is no exception to this. Just when you think you have adapted your tools to it, it will start to behave differently, then again. It is the cyclic way economy manifests and it is also the way on forex. The order moves into chaos, chaos into order. Some strategies work better in one environment. For example, scalping strategies would benefit less volatile periods, while higher timeframe trend following strategies needs momentum and volume which causes volatility.
You will certainly notice the trading session spikes around the same time of course, but if we go back 50 days back or 50 days into the future, your trading results will be completely different. The EUR/USD in 2020 is different than the EUR/USD in 2019. Sticking to just one asset is not only unnecessary and a self-limitation, but it will also affect your account(s). The way to go is finding the pair that is adequate for your system at that time, ignore the others. The bigger the pool of pairs to choose from, the more opportunities where your system works best. This does not mean you should trade every currency pair there is, like extremely volatile/illiquid exotics.
The EUR/USD is the most liquid so that is why new traders focus on it. The EUR/USD is the most traded pair but that also makes it the most popular. Being popular puts you in that 99% group. Here is why this is a problem from different angles. Liquidity does not mean your trades will be more profitable nor it means the asset will have more “reasonable” price action. Retail traders do not have enough capital to move the markets, the liquidity pool is simply too big, at least within the major 8 currencies. Also, prop traders say the price spikes are less often on less popular currency pairs! So the notion of liquidity is better applies only if a pair is very exotic, like TRY/PLN.
Another problem with the EUR/USD having that 99% group is this is a world where big banks and institutions like to mess with them. If you do not know already what the big banks are doing, their manipulation is mostly done where the majority of traders are trading (popular) where they can extract the most money out of. This money goes back into the pool again and the cycle continues. In our Big Banks article, we mentioned that they know where traders’ positions are and move the price against their trades. News events are especially good for this since a lot of trades are focused on certain price levels in short periods.
Talking about the USD, it is a dominant currency and it is also packed with news events and the most manipulated. This brings us to the point where every currency pair with the USD is likely to be affected by this. Luckily, many pairs are not targets for big bank manipulation since they do not have a lot of traders, the 1% group which escape their hands from time to time. So to sum it up, here are some practical tips from prop traders you can apply and compare the results on your accounts:
Trade the EUR/USD only if you know what you are doing, expose less on this market, and do not limit your trading only on one asset. There is no specialization, no currency pair has a special way of price action, only volatility is different, If you are trading on lower timeframes than daily, you will notice volume spikes on certain trading sessions, but then again, every currency has its trading session.
Taking a wrong when you are just starting forex trading can be a danger to your effort. You may become accustomed to a certain asset, strategy, or tools that are not effective, or there are better alternatives you do not know about. This path is unfortunately easy to start walking since there are so many sources available the right paths are not easy to find. Keeping your mind open for other things to try will evolve your trading and your system for the better, it makes sense. Being adaptive will reflect on your system, it will too be adaptive as much as you are. This path is not the easy one, you will need to climb to that 1% group. Forex will filter out the ones who are not persistent, open-minded, emotionally in control, and the ones that gamble.
Source: No-Nonsense Forex channel