Forex Round Numbers Theory
When Trading Forex, Stocks, Commodities and Bullion, keeping an eye on Round Numbers is important.
As per the Psychology, Humans stick around Round Figures. If we observe, we can see that in our day to day life also.
For example, “you want to buy a product. Shop Keeper want to sell that product for $11. But you are not interested to pay more than $10. You ask him to make it round figure and sell it for $10. The same way, Shop Keeper also don’t want to sell his product for $9.5. Even if you ask for that price, he asks you make it round figure. So people hesitate to go beyond round figures.
In trading, Traders also follow the same. After all Traders also Human Beings. This is called “Round Number Theory”.
If you are trading EURUSD, concentrate on Round Numbers like., 1.3000, 1.3050, 1.3100, 1.3150, 1.3200, 1.3250, 1.3300, 1.3350, 1.3400, 1.3450, 1.3500…
Concentrate more on Major Round Numbers like., 1.3000, 1.3500, 1.4000….
In fact, Round Numbers act as Support and Resistance Areas. As I told you in the above example, for you, $10 acts as Resistance. You don’t want to pay above that price. for Shop Keeper, $10 acts as Support. He doesn’t want to sell it for below price.
How to Use Round Numbers in Trading?
Entry, Stop Loss and Take Profit:
According to your Trade strategy, if you get Signal near a Round Number, wait for the Price to cross that Round Number. After that only you enter that Trade.
If you get a Buy Signal at 1.3195, wait for the price to cross 1.3200 and enter at 1.3205. Because, 1.3200 may act as Resistance. Once it crosses that number, then it is good to enter into the market.
The same way, if you get a Sell Signal at 1.3205, wait for the price to cross 1.3200 and enter at 1.3195. Because, 1.3200 may act as Support here.
For example, If you buy at 1.3225
Stop Loss would be : 1.3195 (Because, 1.3200 may act as Support. So, below 5 Pips is the SL area.)
Take Profit would be: 1.3245 (Even if you want to ride the Profits, it is better to make Partial Profits in this area.)
Note: If you are a Position Trader, you may not follow them exactly. But if you trade on M5, M15, M30 and even H1 Time Frames, this Round Numbers Theory is good to follow.