Many people ask how many countries economies should you follow? When they are first starting out they understandably get overwhelmed by the information overload. You may start thinking about all the different countries, all the different economic data, especially of all the different countries that make up the Euro. You have not established a trading model or philosophy yet to assimilate and understand all the information. Truth is there is a lot of economic data that the market doesn’t care about so you can just scratch that off your list and not worry about it. For example, the market doesn’t care about the Japan CPI number, as the market participants have much more important things to worry about.
Once you have knowledge of how to determine market sensitivity, then you can follow many currency pairs as you can then therefore know what is important and what is not.
Too Much Work?
Despite that some traders think that following all of the eight major currencies is too much work. That following the USD, EUR, GBP, CHF, JPY, AUD, NZD, CAD is too much work.
If you think that and get discouraged then I would just recommend you start out with following the USD since it is a major currency as well as another one of your choosing, preferably Euro or GBP. That way you can at least start following how each different economy is progressing and understand the global macro forces for those currencies.
When I started following the currency pairs, I decided to do them all at the same time. The reason was that I did not want to spend six months on just one currency, then rotate to another one six months later. That would take years to get proficient in each of them. I didn’t want it to take 5 years to learn global macro.
I wanted to learn how the various global macro forces and various economies can interact with each other and where they all were in the business cycle, interest rate cycle and how that that influences prices.
Choppy Global Macro Situations
If you think it is too much work then they can just opt to follow one or two countries. The only problem with that is that the trader only gets exposure to one or two types of economies and where they are in the business cycle. The risk you run if you just choose one or two currencies to follow is that you can get stuck trading a currency pair that is not trending and is very choppy. There is nothing wrong with trading choppy currency pairs. There are many ways to trade a choppy market.
For example if you just chose to study the USD and the CAD, then you can become a master at trading USD/CAD. And you will definitely catch some good trades. But you will not catch a huge global macro move of 1,000 pips because the macro environment for the USD/CAD currency pair is not conducive for a huge 1,000 pip movement. The interest rate divergence is just not present for a huge move.
Big Global Macro Moves
On the other hand if you followed all the currencies, then you would be able to take advantage of the huge divergence between the monetary policies of the the United States and Australia and play the global macro trends in the AUD/USD.
After all you want to place trades where the potential for an explosion of sustained volatility is the most greatest. Where the potential for sustained breakouts is the greatest. If you were stuck only with knowledge about the GBP and CAD macro environments then your chances of catching a global macro trend in the current environment is diminished due to the fact that Britain’s economy is still weak and they have signaled potential for a round of quantitative easing if it deteriorates further. The Canadian economy is performing better than the U.S. since it is a commodity based economy, but they have not raised interest rates yet because the slow U.S. growth and strong Canadian dollar is dragging down their economy. Thus you have the choppy price action in the GBP/USD and USD/CAD currency pairs.
Which is why when I learned about news, sentiment, and global macro, I chose to do it for all the eight currencies at one time. So I got exposure to all the different economies and how the economic data and global macro environment affected them all. I got exposure to how risk appetite and risk aversion affected them all. I got exposure to trading in different market environments, to central bank interventions, to how a financial crisis affects currency pairs, etc.
I didn’t want to just develop tunnel vision and focus on one or two major currencies.
I didn’t just want to learn a lot about a little.
I wanted to learn a lot about many currencies, with the appropriate system for judging market sensitivity.
And thus you can spot the big moves in various currency pairs, instead of just being limited to only one or two currency pairs. You can shift your trading capital to take advantage of changing global macro conditions throughout all the different currency pairs.