One of the techniques / strategies born of the phenomenon; Trading techniques by utilizing round numbers / Round Number.
There are various ways to determine the area of support and resistance in the forex chart, and there is one interesting study that is "psychology in round numbers".
If you have been trading for a long time, of course you will encounter an odd incident where the price tends to react to round numbers (such as the level .9900 or .9800 in the AUD / USD pair, as shown in the chart below).
As you know, where the balance point is at the 1.0000 / pair rate for the AUD / USD pair; When 1 dollar australia is worth equal to 1 american dollar. Humans in general, have a tendency to put things simple / simple; In any case. So things like this can happen / reflected in the forex chart. And for the sake of personal preference of that simple thing, most people will round up their order numbers to a rounded guess.
On the chart above, traders try to place sell orders when prices reach or close to 1.0000; And soon the price starts to react to the round number. This is enough to confirm the validity of this technique.
So, what exactly are round numbers in forex?
Traders may classify numbers that have at least 2 zeros like 1.31000 on EUR / USD, 1.57000 at GBU / USD, or 132.00 on GBP / JPY as a round number. On the chart below we will see together the numbers "double zero" is together.
The price on the chart above reacts to the level with a multiple of 100 pips. Moreover this is also directly related to the average daily movement of EUR / USD in the pip.
Some traders even divide deeper by dividing their charts within a 50 pip range or relating to the middle numbers of the above 2 limits. For example, 1.31500 on EUR / USD or 131.50 on GBP / JPY can be used as a separate level, like a "double zero" level. Let us call the level "50".
If we use level 50 on the same chart as before, then the chart appearance will be like this.
Notice in the chart above there are many reflections / price movements that occur when the price touches the level 50 or double zero level.
Well, let's look again at the "swing" that occurs when the price touches those levels on the chart below.
This causes these levels to play an active role as a support and resistance level in the chart; Because traders pay attention, care and put the limit of its order (take profit, stop loss, and pending order) at these levels. However, not all of the 50 or double zero levels can be a strong support / resistance so you still need other indicators to fine-tune your analysis.
However, the more round the price figure on the chart, the stronger the price position is to be the support / resistance according to this strategy. Let's look at an example of price movement when it hits a strong level at 1.30000 (EUR / USD), in the event of a monetary crisis in the union region of Europe.
When the price touched 1.3000 level, the price bounced back as much as 3 times before finally descending further to the 1.2500 level (back to rounded figure).
In many cases, psychological levels (50 or double zero) that have not been used as support or resistance in price movements can now be viewed as pivot points. In general, round numbers such as 1.30000 on EUR / USD or 1000 on AUD / USD and USD / CAD will attract the attention of traders and bankers rather than the 1.31000 level on EUR / USD; Decision-making at the banker level will always take into account the really rounded levels, thus providing greater strength to the round number.
Then, what about Stop loss and Take profit range?
There are 2 approaches; The first is to use a method similar to scalping, where the size of the range of the SL you are installing is slightly larger than the TP. Example :
SL 30 pip, TP 15 pip; or
SL 20 pip, TP 5 pip.
Or by using a strategy price / action trading strategy, where the amount of SL and TP is equivalent to the next support / resistance range with the ratio of SL: TP = 1: 2 or 1: 3. Example :
If the next support / resistance level is 50 pips, then TP = 50 pips and SL = 25 pips; or
With the same support / resistance distance, TP = 50 pip and SL = 15 pips.
Again, the determination of SL and TP depends entirely on the risk management that you apply, as well as to your trading style.
Hopefully this article can help refine your technical analysis in trading.
There are various ways to determine the area of support and resistance in the forex chart, and there is one interesting study that is "psychology in round numbers".
If you have been trading for a long time, of course you will encounter an odd incident where the price tends to react to round numbers (such as the level .9900 or .9800 in the AUD / USD pair, as shown in the chart below).
As you know, where the balance point is at the 1.0000 / pair rate for the AUD / USD pair; When 1 dollar australia is worth equal to 1 american dollar. Humans in general, have a tendency to put things simple / simple; In any case. So things like this can happen / reflected in the forex chart. And for the sake of personal preference of that simple thing, most people will round up their order numbers to a rounded guess.
On the chart above, traders try to place sell orders when prices reach or close to 1.0000; And soon the price starts to react to the round number. This is enough to confirm the validity of this technique.
So, what exactly are round numbers in forex?
Traders may classify numbers that have at least 2 zeros like 1.31000 on EUR / USD, 1.57000 at GBU / USD, or 132.00 on GBP / JPY as a round number. On the chart below we will see together the numbers "double zero" is together.
The price on the chart above reacts to the level with a multiple of 100 pips. Moreover this is also directly related to the average daily movement of EUR / USD in the pip.
Some traders even divide deeper by dividing their charts within a 50 pip range or relating to the middle numbers of the above 2 limits. For example, 1.31500 on EUR / USD or 131.50 on GBP / JPY can be used as a separate level, like a "double zero" level. Let us call the level "50".
If we use level 50 on the same chart as before, then the chart appearance will be like this.
Notice in the chart above there are many reflections / price movements that occur when the price touches the level 50 or double zero level.
Well, let's look again at the "swing" that occurs when the price touches those levels on the chart below.
This causes these levels to play an active role as a support and resistance level in the chart; Because traders pay attention, care and put the limit of its order (take profit, stop loss, and pending order) at these levels. However, not all of the 50 or double zero levels can be a strong support / resistance so you still need other indicators to fine-tune your analysis.
However, the more round the price figure on the chart, the stronger the price position is to be the support / resistance according to this strategy. Let's look at an example of price movement when it hits a strong level at 1.30000 (EUR / USD), in the event of a monetary crisis in the union region of Europe.
When the price touched 1.3000 level, the price bounced back as much as 3 times before finally descending further to the 1.2500 level (back to rounded figure).
In many cases, psychological levels (50 or double zero) that have not been used as support or resistance in price movements can now be viewed as pivot points. In general, round numbers such as 1.30000 on EUR / USD or 1000 on AUD / USD and USD / CAD will attract the attention of traders and bankers rather than the 1.31000 level on EUR / USD; Decision-making at the banker level will always take into account the really rounded levels, thus providing greater strength to the round number.
Then, what about Stop loss and Take profit range?
There are 2 approaches; The first is to use a method similar to scalping, where the size of the range of the SL you are installing is slightly larger than the TP. Example :
SL 30 pip, TP 15 pip; or
SL 20 pip, TP 5 pip.
Or by using a strategy price / action trading strategy, where the amount of SL and TP is equivalent to the next support / resistance range with the ratio of SL: TP = 1: 2 or 1: 3. Example :
If the next support / resistance level is 50 pips, then TP = 50 pips and SL = 25 pips; or
With the same support / resistance distance, TP = 50 pip and SL = 15 pips.
Again, the determination of SL and TP depends entirely on the risk management that you apply, as well as to your trading style.
Hopefully this article can help refine your technical analysis in trading.
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