How to use Round Numbers as a FX Trader
In this weekly video:
00:29 – How to profit from using Round Numbers
01:15 – Strong Buying and Selling horizontal levels
01:53 – A level ending in 00 or 50 – price will react at these levels
02:52 – I use these levels in a variety of different ways – with a trade example
04:25 – How you can use round numbers
05:04 – Using a round number to predict my profit target and to add safety to a stop loss
05:35 – Use these levels and do some back testing
06:02 – Many traders fail to look at the price
I'm going to explain how you can profit from the Forex market by using round numbers. It's really important so listen up. Let's get into it right now.
Hey Forex traders! Andrew Mitchem here, The Forex trading coach. Video and podcast number 231.
How to profit from using Round Numbers
Now this is a really important lesson and I would like to explain to you how I use round numbers and how you can use round numbers to your advantage and to help you profit as a Forex trader. See the things that I like to do in trading, I keep things simple. To me it's really important that as a professional trader and as a Forex teacher, I'm teaching people how to trade in an easy, simplified way that is practical. You see it's all well and good having all these systems and lines crossing over and different things going on, but if it's not practical and it's not something that you can do in real time, and you can do with enjoyment as in like you're not trading all of the time, than it doesn't really mean a lot. So let's talk about round numbers because they are very, very important.
Strong Buying and Selling horizontal levels
The reason I like them is I like psychological levels, reasons why people are buying and selling. I also love the use of horizontal lines on my charts. Now you might say why horizontal? Well, a horizontal line does not move. It's always fixed. It's not like a moving average or a MacD or RSI or one of those other, you know, sort of squiggly lines on your charts that are moving all the time.
A horizontal line is a horizontal line. I can see it, you can see it, it doesn't matter who your broker is, what your platform is. It's there for everybody to see if you know what you're looking for.
A level ending in 00 or 50 – price will react at these levels
So think of it this way, a round number, and I call a round number something that ends in a 00 or a 50, so the price of the pair might be 0.7000 or 7100 or 7150, something like that. Something ending in 00 or 50. Think as in like why the price is reacting at those levels, so go back to a scenario we all know, let's go to a shop.
We're buying something and the price is $100 or $101 let's say, but that doesn't happen does it? Because when you buy something from a shop the price will be $99 or $99.50 or $99.99, you know, something like that. Psychologically round numbers are there everyday in what we do, what we buy, so it's no different to trading Forex. Think of the 00s and the 50s.
I use these levels in a variety of different ways – with a trade example
I love to use those levels in a variety of different ways. To give you an example, just last night I took a trade on the New Zealand dollar, Swiss Franc on the four hour chart, you can go and find it on your charts. It was taken on the 29th of June, go and find it on your charts.
The price bounced through the 70 level, 0.7000 and it showed a really good set up and I could use that in a few ways, the price, and I was selling the New Zealand Swiss Franc. The price had already closed below the 70 level, the 70 cents level. It meant that I could then use that as an area to put my stop loss above that because in order for the price or for the trade to fail, it meant that the price then had to of rose back up through 70 and beyond in order to stop me out of the trade.
In the end the trade worked beautifully. I had a 2.6 to one reward to this trade, which meant at half per cent risk because you know that that's the way I trade, I made a 1.3% account gain and I posted that trade as I took the trade to my clients on our forum site, and I also posted the result and you can see, you know, when I took the trade and after the trade's finished. The great thing was I was asleep when the profit was hit. I took the trade at 9 o'clock on the Thursday night my time, here in New Zealand. Woke up this morning I'd made 1.3% on my account with that one trade, so it's a great trade.
How you can use round numbers
So how can you use round numbers? Well, when you see the price reverse, let's say, and it goes up and it hits a level and it hits say psychological bounce level, a round number, it then reverses for a reason. So if a round number's the potential reason, that's great. In my example on this particular trade, I used the 70 level, the price had gone through 70 level and closed below it on a sell trade, I could then use the 70 level to say if the price comes back, it's not going to break through that 70 level and it went through by about one pick, and then continued down again into my favour, into my profit target.
You could also use it as a profit target. Well let's say my profit was at 69, 0.6900. I wouldn't need the price to go, I don't want to think that the price is going to go through 69 to get to my profit target, I want my profit target at before that level. I mean my profit target wasn't there. I'm just giving you an example. My profit target was using a fib level, but as an example I want to get profit out of a sell trade before the price has to go through the next round number.
Use these levels and do some back testing
So use round numbers in your trading. They are horizontal lines. They're there on your charts, plot them on your charts, use them. Go back and look at charts, do some back testing and have a look at levels where on any currency pair where the price restored or bounced at a 00 or 50, they're everywhere. Really, strongly encourage you to use that in your trading. That one tip alone could make you an absolute fortune from your trading because it just really helps.
Many traders fail to look at the price
You know people that use all these pretty patterns and all these charts and indicators and things, you know, they fail sometimes to look at the actual price, so it's really important that you look at the price on the right hand side of the chart. What is the price of this currency pair and why? Hope that helps, round numbers are very, very important.
This is Andrew Mitchem the Forex trading coach. Have a great weekend. I'll see you this time next week for more trading tips and information. Bye for now.