| There is a lot of ways to trade Forex market. Some | | | | extremely important but don't happen often enough |
| people are attracted to participate in it because of its | | | | and, for the purpose of this article, are treated as |
| long lasting primary trends. Others like large leverage | | | | any other round number. |
| available. Others still might like 24 hour nature of this | | | | Why are those areas psychologically important levels? |
| markets, while yet another another group might | | | | Market participants as a whole tend to put conditional |
| appreciate the unprecedented volume. There is little | | | | orders near or around the same levels. While |
| surprise, that for a large segment of traders, active | | | | stop-loss orders are usually placed just beyond the |
| intraday trading is a way to go. | | | | round numbers, traders will group their take-profit |
| Very short term traders tend to concentrate on | | | | order at the round number. As a result, take-profit |
| price action trading methodologies, rather than | | | | orders have a very high tendency of being placed at |
| indicator and oscillator based systems. An example is | | | | full "figure" level. Since the FX market is a nonstop |
| trying to exploit previous highs or lows. Congestion | | | | continuous market, speculators also use stop and limit |
| zones are other areas of interest. So are simple chart | | | | orders much more frequently than in other markets. |
| patterns, like triangles, pennants and wedges. Even | | | | Unlike other financial markets, an average trader |
| something a little more complex, head and shoulders | | | | doesn't have access to the order book and can |
| with its variations known as "crowns" are price action | | | | judge for himself the order flow. Round offer a |
| set ups. They don't require any other input but the | | | | relative predictability of order placement. |
| price data itself. | | | | It is believed that large banks with access to |
| Past high and lows are viewed as supports and | | | | conditional order flow, like stops and limits, actively |
| resistances. When trading intraday, it is impossible to | | | | seek to exploit these zones. So, strategy of fading |
| look for bounces off of every one of those levels | | | | round numbers attempts to put traders on the same |
| and expect to be profitable. The key to successful | | | | side as market makers or the "smart money". Here |
| intraday trading requires that we be more selective | | | | are rules for a simple, contra-trend, trading strategy. |
| and enter only at those levels where a reaction is | | | | For a buy set up, identify a currency pair that has |
| more likely. For example, one could look for areas | | | | already moved 30-50 pips and is approaching round |
| where there is a confluence of these trading zones. | | | | number. Once the figure is breached, enter a position |
| A high, or low, visible on both 15M and 5M charts is | | | | a few pips below the level, but no more than 10-12 |
| certainly more important that one apparent only on | | | | pips away. Place stop/loss 15-25 pips from your |
| 5M graph. | | | | entry. Look to take profit at minimum twice the |
| Then there are psychologically important levels. | | | | amount you risked. For a sell trade, revers the rules. |
| These areas might not have a clear representation as | | | | Strategy is very simple, but should be practiced for a |
| most recent support or resistance zones, but have | | | | while, just like any other one. Also, some currency |
| importance because of other reasons. Probably best | | | | pairs with large spread, are not necessarily best |
| known of these are round numbers, also known as | | | | candidates for using it. GBP-JPY comes to mind. On |
| "the figures". Example of round number is 1.5600 in | | | | the other hand, most of the major crosses lend |
| EUR-USD, or 107.00 in USD-JPY. Fractional even | | | | themselves handsomely for this set up. They have |
| numbers like 1.5640 or 107.70 are too common and | | | | small spreads and, collectively, touch round numbers |
| not really of much importance. On the other hand | | | | often enough throughout the day, to make it a viable |
| "full" or "triple zeros", like 1.5000 in EUR-USD, are | | | | trading method. |