The main thing is to pair strength against weakness

It really is as simple as the title. Pair strength against weakness when you are trading an FX pair. Think about it for a moment. If you had to predict which boxer would win in a boxing match and your life depended on it, which fighter would you look to back? The strongest one, of course. The one who is in the best form and the most power. Let’s say, an 18-stone pro-fighter is in one corner and a 13-stone out-of-shape and overweight amateur is in the other corner. Which one would you project to win? The strong, 18-stone pro-fighter, of course.

Think of currency trading in exactly the same light. Look to back the strong fighter/currency against the weaker fighter/currency.

Don’t let this concept leave you

Every time that you trade FX you always want to ask which currency is the strongest, which currency has reasons for strength. Maybe there has been a surprise data point or a big shift in interest rate expectations. Maybe a geopolitical event has occurred. Ideally, you want to be trading the weakest currency against the strongest currency.

There are many finer points to trading FX but this core concept is arguably the most important. So, next time you trade FX think to yourself whether you are trading strength against weakness. By keeping focused on this you will more often than not find picking directions much easier as the strong currency will tend to gain against the weak currency.