There are two main factors for choosing a currency pair.
1. The average daily range of PIPS that the pair moves.
2. The clarity of the patterns produced by the pair.
The best currency pair to start trading is a currency pair that has a small spread and sharp and strong signals. So EUR-USD is the best. Most brokers charge 2 pips when you buy EUR-USD and recently I have seen some brokers that charge even less than one pip.
The EUR/USD has always been the pair that is most popular among Forex traders. And yet I never trade that pair primarily because it has a relative small average daily range of movement compared with some others. After closely following all the pairs every day for years, I discovered that most of the pairs are correlated directly or inversely. Almost all the pairs are doing something similar so there is no reason to trade all of them.
GBP-USD is so similar to EUR-USD but it has a higher spread and greater volatility. You can try the GBP-USD only after few months that you have been working with EUR-USD but if you are happy and comfortable with EUR-USD, forget about GBP-USD.
USD-JPY and USD-CAD are completely different from EUR-USD and GBP-USD because they are dependent on two different countries, Japan and Canada with different economy and situation from Europe, GB and USA.
It does not really spread the risk to trade several pairs that are all doing the same thing. The GBP/JPY is the king of PIP movement so if you enter a trade on that pair you will get more profit for doing the same work compared with entering a trade on another pair. Many people are afraid of this pair because of the volatility but that is because they do not recognize patterns and entry signals and since it moves large number of PIPS, they are afraid of large losses rather than focusing on the large potential wins.
Clarity of pattern is the other primary factor and some pairs make no sense at all in terms of producing recognizable patterns. Since our trading decisions are based on signals and patterns, it makes sense to first look at the recent history of any pair being considered and see if the pair has a history of producing chaotic or recognizable patterns.
Often the EUR/JPY forms patterns that are more easily recognized than the GBP/JPY. Therefore it is more desirable to trade this pair even though the same movement will often produce more PIPS on the GBP/JPY. Since these two pairs are closely correlated I also often use the EUR/JPY to gain insight into the patterns being formed on the GBP/JPY because when an entry occurs it is likely to form on both pairs.
It is also a good idea to check the current status of the EUR/GBP in order to see which currency is stronger or weaker. This can tell you which of the two pairs, the GBP/JPY or EUR/JPY is likely to be favorable for going long or short. If the EUR/GBP is going up then the EUR is stronger than the GBP and therefore the EUR/JPY is favorable for any long entries while the GBP/JPY will be favorable for the short entries.
Because successful trading depends on the market forming trends, one of the most important insights to experience is that when a pair is correcting or consolidating that means that the trading opportunity has shifted to a different time frame. So the truth is, once you see how to recognize patterns within patterns you will know that the market is always tradable if you know which time frame the trade is producing the ideal formation of a trade entry and exit.
Average Daily Range
Every currency pair moves differently and has its own unique tendencies. Because of this, not every pair is going to work with the strategies that you use. One way that you can distinguish between pairs is by looking at the average daily range that it moves. Every day, the currency pair is going to move a certain amount of pips. The higher the average daily range is, the more active that pair is. Whenever you are looking at the average daily range of a currency pair, you want to make sure that you look at the pair over an extended period of time. Sometimes, currency pairs will move a certain way for a few weeks and then go back into their old ranges again. By looking at the average daily range, you will be able to tell how much the currency pair usually moves over the course of a trading day.
Clarity of Patterns
Something else that you will want to look at is the clarity of patterns that are created by this currency pair. If you are going to use technical analysis, you need to be able to determine when a pattern is performing with a particular currency. Otherwise, you will not have much luck when it comes to predicting which way you should trade. Ideally, you would like to be able to trade with a large trend when it occurs. However, if you are working with a currency pair that does not illustrate its trends very well, you are not going to be able to profit with this method. Some currency pairs move up and down without actually forming a clear pattern. If you are the type of Forex trader that likes to trade the trend, you are not going to be profitable with this type of pair.
For example, the GBP/USD and the GBP/JPY pairs are two that clearly demonstrate their patterns. Whenever the market picks a direction with these two pairs, it will typically move over 100 pips before going back the other direction.
Whenever you are looking at a currency pair, you also want to make sure that it fits in well with your unique trading style. There are many different methods that you could potentially use to trade the Forex market. Whenever you select a trading method, you need to make sure that the pairs that you trade fit well with this strategy. For example, if you are a scalper that likes to take small pips out of the market, you might decide to work with a currency that moves back and forth like the EUR/CHF or AUD/NZD. If you are a long-term trader, you might lean towards the GBP/USD or GBP/JPY pairs.