Round numbers and Very big round Numbers

Round numbers: Price values ending with .0500, .0600 etc

Very big round numbers: Price ending with   .0000, .1000,.2000 etc

Importance:

Round numbers and very big round numbers can act as a supportor resistance level in some cases.

See the chart above, the encircled portions indicate the rejection from round numbers. The price was coming up and when it reached the level of 1.3000 which is a very big round number the direction of movement reversed. Price couldn’t break that level and it fell down. This is a typical example of round number acting as resistance. The price fell down till a level of 1.2900 which is also a round number and found support at that level.

Reason:

People usually think in round numbers. People are more comfortable to start or end a trade in round numbers, which will help them in easy calculations. This is general psychology of human beings. So when a large number of traders are trying to close their trade when the price reaches a round number, there will be a change in momentum of price. If the price is in uptrend and when more traders are trying to take their profit at a round number level, the price will cease to move up causing a change in direction. (It doesn't necessarily mean that price is reversing.)

Significance in trade:

• To get the best entry and exit points.

In the above chart the price level 1.3000 is good entry point for shorting the currency pair EUR/USD. Level 1.2900 act as a significant exit level.

• Decision in placing the stop loss.

Strategic placing of stop loss can be done with the help of round numbers. If the nearest round number in a trade is very well respected before then we can place the stop loss in accordance to that round number. (Only if it is within the traders money management rules)

All round numbers will not show these actions. It is only a probability and while taking a trade other factors should also be taken in to consideration.