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Resolved Question
Do different pairs trade with the same characteristics at key levels? See example:
I noticed that at the 100s in EUR/US, there is usually a "bounce back" when running up or down into the 100 level. Does this hold true with the pair(s) you trade?
over 2 years ago
Best Answer - Chosen by Voters
The "00" and "50" levels tend to hold as support and resistance levels for almost all currency pairs, some more than others.
Based on my experience, these "psychological" levels work best for USD/JPY.
Support and resistance levels are based on the psychology of the masses. The common thought and behavioral patterns dominate the markets and allows experienced traders to take advantage of them.
It is a fact that people tend to like round numbers better than random numbers. When placing entry orders, Stop Loss and Take Profit, people tend to place the orders at round numbers.
This phenomenon has been proven and tested in the markets, and allows the smart trader to anticipate reversals and potential barriers for price.
Another interesting phenomenon is that the strength of a certain support or resistance levels tend to increase as the number is more round. In ‘more round’ I mean the number of zeros in the number. For instance, 105.00 is a stronger than 103.00. 110.00 is stronger than 105.00. 100.00 is stronger than 110.00.
1.5000 is stronger than 1.5500. 1.0000 is stronger than 1.14000.
Be extra careful when price is approaching a certain rounded number. This level can easily become Support or Resistance level even if price has never stopped on that level before. Approach of price to a round number can be an exit signal in case trade is in profits, and sometimes can even cancel the trade. Pay attention to barriers like this as they can sabotage the best trades.
Second method which is riskier, is to choose a very round and strong potential support or resistance level (95.00, 110.00, 1.5000) and to anticipate a reversal at that level. Trader then waits for a short-term confirmation of the reversal and profits from the reversal at that level. It is advisable to wait for at least one test of the level before trading it. Despite the strength of round numbers, they sometime are broken when momentum is high.
Due to psychological phenomenons, round numbers can easily serve as support and resistance. A trader who is aware of this phenomenon can easily harvest profits and enhance his or her trading using several trading methods.
over 2 years ago
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Based on my experience, given Ninja's explanation above, it is also better to place stop loss triggers above a psychological round number for a short trade and below a psychological level for a long trade.
over 2 years ago
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