Forex Telescopic effect of Currency Pairs

I created this thread to get some ideas about the facts that I am going to present. Any ideas and questions are welcomed.

Please lets keep this thread as mature and as polite as possible.

I am always wondering what would be the best way of placing Stop Loss and Take Profit values. Also how to select the most suitable pair to trade at that moment.

I will try to give you an example to get into details.
Lets say we have the following pairs with their prices (we should always use 3 connecting circular pairs):

AUDUSD 0.7130
GBPUSD 1.5340
GBPAUD 2.1510

Now if AUDUSD gained 20 pips, the new price becomes 0.7150
If GBPUSD went down 20 pips, the new price becomes 1.5320

So what would be the price of GBPAUD? (for the example we will just use these 3 pairs, not considering the other pairs for now)
Initially it looks like GBPAUD should go down by 40 pips (AUD gained 20 pips + GBP lost 20 pips = 40 pips).

Most of us know that that is not the case.

If we use percentage ratios of gains and losses, than we come to the correct solution, as below:

AUDUSD 0.7150/0.7130 = 1.0028

GBPUSD 1.5320/1.5340 = 0.9987

So GBPAUD becomes 2.1510 * (0.9987/1.0028) = 2.1422. As you can see GBPAUD would lose 88 pips.

Now this reality creates some questions in my mind:

1. Why do we hear people saying "Use fixed 20 pips stop loss, 40 pips Take profit" for example? From the example above we can see that the sl or tp values should be very much different for each pair.
We could have used 30 pips SL for GBPUSD without being hit. But on the other hand 30 pips SL for GBPAUD would be a straight loser.
I think ATR doesn't solve this problem either to this extent, because it is dependent on recent activity.

2. When we are planning to trade a pair, should we look at the other circular 2 pairs?

3. When we do technical analysis or whatever analysis we do, should we analyze all 3 circular pairs?

4. When we are selecting a pair from the 3, should the lower risk tolerant traders pick the pair with lowest pip movement potential? (vice versa for the higher risk seekers).

5. If we believe that (above example) AUDUSD will go up and GBPUSD will go down, instead of trading AUDUSD long or GBPUSD short, should we pick the corresponding third pair with more profit potential?

The questions about circular 3 pairs could go on and on. These are the inital questions that came into my mind.

If you are interested in this subject, please give your comments, ideas, whatever comes into your mind.

Thanks for reading and have a good night for now.

Source.