News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • It’s important for traders to be familiar with FX spreads as they are the primary cost of trading currencies. Understand a pair's spread here: https://t.co/zEEUHZjVIG https://t.co/f6mraHu6zv
  • Technical analysis of charts aims to identify patterns and market trends by utilizing differing forms of technical chart types and other chart functions. Learn about the top three technical analysis tools here: https://t.co/KDjIjKWitK https://t.co/JMsJPQlQ3j
  • 🇳🇱 Consumer Confidence (SEP) Actual: -5 Previous: -6 https://www.dailyfx.com/economic-calendar#2021-09-22
  • A rough start to the week with the cryptocurrency market a sea of red with losses on either side of -10% a common sight.Get your market update from @nickcawley1 here:https://t.co/AUfuM9t7yw https://t.co/lU6HS7fHwr
  • RT @FxWestwater: Gold, Copper Forecast: XAU Eyes FOMC, Evergrande News Sends Copper Flying Link: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2021/09/22/Gold-Copper-Forecast-XAU-Eyes-FOMC-Evergrande-News-Sends-Copper-Flying.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https://t.co/x2sC…
  • Heads Up:🇳🇱 Consumer Confidence (SEP) due at 04:30 GMT (15min) Previous: -6 https://www.dailyfx.com/economic-calendar#2021-09-22
  • PBoC liquidity injection + reports that Evergrande will make its next onshore bond payment ($35.88-million on 23 Sept) is bolstering risk appetite here. Yet, there is still no word on the $83.53-million offshore bond payment also due Thursday. Over to you now, Jpow & Co. https://t.co/3an0K2d5T1
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9FlspUVZz https://t.co/ewdevfzq9I
  • Bank of Japan: - Outlook highly uncertain amid Covid - Asset purchase outline unchanged - Cuts assessment of production - exports, production impacted by supply side constraints - BBG
  • Heads Up:🇯🇵 BoJ Interest Rate Decision due at 03:00 GMT (15min) Previous: -0.1% https://www.dailyfx.com/economic-calendar#2021-09-22
Psychological Levels & Round Numbers in Forex Trading

Psychological Levels & Round Numbers in Forex Trading

Warren Venketas, Analyst

Key levels in forex tend to draw attention to traders in the market. These are psychological prices which tie into the human psyche and way of thinking. This article will cover the following key areas about psychological levels and round numbers in forex trading:

  • Psychological level definition
  • Identifying psychological levels
  • Using psychological levels to trade forex
  • Advantages and limitations of psychological levels

What are psychological levels and how do they work?

Psychological levels are market price levels which are often key levels in forex denoted by round numbers. These round numbers frequently act as levels of support and/or resistance.

Psychological support and resistance consistently work because of fundamental human disposition. Human beings value simplicity; from a trading perspective this means valuing whole numbers. Traders often use these numbers as entry, exit or stop levels. These stops and limits can alter order flow and price changes.

psychological levels in forex trading

Identifying psychological levels on forex charts

Traders will often call these whole number intervals ‘double-zeros,’ as these prices are at even numbers such as 1.31000 on EUR/USD, 1.57000 on GBP/USD or 132.00 on GBP/JPY. The chart below identifies the ‘double-zeros’ on the current USD/JPY chart.

psychological levels double-zero round numbers on USD/JPY chart

Some traders will take this a step further by looking at the number directly in the middle of these whole numbers or ‘the fifties.’ These levels, such as 1.31500 on EUR/USD or 131.50 on GBP/JPY can often come into play in the same manner as the ‘double-zeros.’

Traders will notice that there will often be some element of congestion at these key levels in forex as prices move up or down. The chart below illustrates USD/ZAR with ‘fifties’ denoted.

psychological levels the fifties USD/ZAR

Notice that many of the price swings on the above chart take place around one of these levels. Therefore, traders want to incorporate these levels into the support and resistance revisions. The chart below represents the initial USD/JPY chart with identified swing levels.

price swings at psychological levels

Consequently, these prices act as a psychological line which work well as support and resistance. Not every one of these prices act as a function of support or resistance, but enough do that these levels warrant the trader’s attention.

How to use psychological levels in forex trading

AUD/JPY weekly chart

forex inflection points

On the AUD/JPY chart above there are six strong inflections off the 75.00 price level. Each time price approached 75.00, the currency pair bounced back up. This is because:

  1. Traders saw the price of 75.00 and believed this is cheap which prompted long AUD trades off this level.
  2. As traders were opening short positions, profit targets were set at an even 75.00. This profit target order to close positions created demand in the market (traders were buying to cover, and this buying interest is considered ‘demand’).

After the first inflection, traders may not have been extremely bullish on the prospect of pushing price much lower than 75.000 as this price has already been exhibited as support.

In many ways, untested ‘psychological’ levels can be looked at like pivot points. An area where there maybe some element of support or resistance.

In general, round numbers such as 70.000 on AUD/JPY or 1.0000 on AUD/USD will garner more attention than a more pedestrian level like 71.000 on AUD/JPY. Most traders will often assign a higher degree of strength to the more rounded-intervals.

Where traders can really find value with these levels is when prices may have resisted or been supported there in the past. This tells the trader that others are noticing and acting on those prices, and the potential for the ‘self-fulfilling prophecy’ of technical analysis may potentially be considered with more strength.

Advantages and limitations of psychological levels

Key levels in forex should be assessed in line with the current trend and whether there is secondary technical suggestions in favor of the trade. Below are the advantages and limitations of psychological levels:

ADVANTAGES

LIMITATIONS

Serves as key levels of support and resistance

Not always 100% reliable as a key level

Easy to identify for novice traders

Should be used as a guideline in conjunction with supporting indicators/technical analysis techniques

Can be implemented in all financial markets

Further reading on forex trading techniques

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES