Why Round Numbers Work
In this weekly video:
00:33 – What is a Round Number?
01:10 – People move to the market
01:45 – The NZD/USD chart example with the price at 0.7000
03:54 – The EUR/AUD reacts at 1.6000
04:30 – Get my Round Numbers indicator – Link is on this page
I'm going to talk about why round numbers work in the Forex market. They just do. Let's find out more about that right now.
Hey Forex Traders, Andrew Mitchem here. The Forex Trading Coach video and podcast number 271. This is all about the importance of round numbers, how to use them, and why they work. Really, really important video so listen up.
What is a Round Number?
Round numbers, what are they? Well I call a round number a price level that ends in a 00 or a 50. Two very powerful levels. Think about it this way, when you go to a shop you will buy something for $19.95 or $19.90, but you won't buy at $20.00 or $20.05. You're buying a house, you're looking at a nice big house. Would you a pay $1,500,000 for it or would you pay $995,000 for it? It's all about that strong level. When the price gets to a certain level, people react.
People move to the market
Because after all the market is moved by people and emotion and reactions, whether it be to news events or price levels. It's people that move the market. Even with algorithms in the market, of which there's an enormous amount, they're still coded to look for certain events and certain reactions. You can look through your charts, all over charts, and see how round numbers react; or the price reacts at round numbers, I should say. It's more that way around. The price stalls or changes directions at round numbers.
The NZD/USD chart example with the price at 0.7000
I'll give you an example. I had a phone call this week, on Wednesday my time, from a client who lives locally … I'm sorry from a contact, not a client. He wanted to become a client. He lives locally. He said to me, “Hey Andrew, you're talking about Strength and Weakness and daily directions and all this sort of things. How do you pick them?” I gave him an example and because he lives in New Zealand I said, “Look, go have a look at the New Zealand dollar against the US dollar.”
You can do the same right now. Have a look at last week and the Kiwi dollar's been falling for quite a while against the US. By the way that fall started at a round number, it was 74, 0.7400. I said to him, “As the price is falling, everybody's going to be selling the New Zealand dollar but,” I said, “be careful because strength and weakness. Yes it's falling but be careful of the next big round number of 0.7000, the $0.70 level.”
Go have a look at your charts. Right now the price came down to just below that level, it hit a perfect high, which by the way was from the 9th of November, just below the 70 level, so it took out a whole heap of stops, got people in on sell trades going further down, and it's reacted at around that 70 level and right now it's pulled back. Right now, as I'm recalling this being Friday here in New Zealand, it's at 70.50, so 0.7050. It's now stalled at the next round number. No surprises there for me because these numbers are so powerful.
I was able to say to him, “Yes, Strength and Weakness says the Kiwi's dropping, definitely.” But be careful. Look at where it is in the chart, look it's at bottom Bollinger Band area. It's at a previous support and resistance level and it's at a very, very strong psychological bounce level. Do not just sell it because you're going to sell it. Think of reasons why, look for proper reasons to sell it. Don't just go ahhh, the Kiwi's weak, I'm just going to sell. That's not going to make you money. Look at where the price is. Okay, it's at 70, oh it's bouncing. Okay, well maybe it's going to retrace back now, maybe it's completely reversing. But 70 is holding right now.
The EUR/AUD reacts at 1.6000
Paul, over in America, he gave a great example on my US webinar yesterday of the Euro Australian and how it reacted at 1.6000, this week. There were some great trade set-ups. He was explaining to clients the perfect set-up on the one hour chart. They had a down trend, a pull back to 160, it was at middle Bollinger Band, there was a trend line break, there was divergence, there was everything we're looking for. And guess what happened? It reacted there, price fell away beautifully. Use round numbers in your trading. They're very, very powerful.
Get my Round Numbers indicator – Link is on this page
If you'd like to get a copy of my indicator that plots those on your charts, just download my free Engulfing Candle course and there's an indicator there called Round Numbers. Really simple. It just plots all the numbers ending, the price levels ending in 00 or 50. It's very, very useful. Like most good things, they're quite simple, but they're useful. It's important that you use these additional tools as part of your trading because it dramatically will increase your profitability. Absolutely no doubt about that.
This is Andrew Mitchem, the Forex Trading Coach. I'll see you this time next week. Bye for now.