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The price may hit the line and reverse, it could hover around the level as Bulls and Bears fought for supremacy, or it may punch straight through. A trader should always exercise caution when approaching 00 levels in general, and 50 levels if it has previously acted as Support or Resistance. If a stock price is moving between support and resistance levels, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support [9] as per the following example:.
When judging entry and exit investment timing using support or resistance levels, it is important to choose a chart based on a price interval period that aligns with your trading strategy timeframe.
Short term traders tend to use charts based on interval periods, such as 1 minute i. Longer term traders typically use price charts based on hourly, daily, weekly or monthly interval periods.
Typically traders use shorter term interval charts when making a final decisions on when to invest, such as the following example based on 1 week of historical data with price plotted every 15 minutes. This signals a change from negative to positive trending.
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However, the rally met selling pressure into the recent 76 highs with price since reversing back under the In the image above you can see a great example of how to identify confluence between a key Psychological level and other technical elements. Apr 15, For this reason, the standard pivot indicator is ideal for planning short intraday trades or just optimizing an entry or exit point for a trade of any As you can see we use only 5 major Pivot point levels: R2, R1, PP, S1 and S2. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. See our privacy policy.
MT4 accounts tailored for you. Key to Markets is a pure ECN broker. In this article, we will explore how our recently launched round levels indicator for MT4 can assist you and how to apply this information in your trading strategy for the best results. The notion of rounding prices is not exclusive to Forex trading.
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Humans operate according to hundreds of cognitive biases. Traders and investors spend years conditioning themselves to suppress their biases and listen to data.
One of such biases is the Round Number bias. For example, if someone asked how much your laptop cost, you would answer them without hesitation and round the price to the nearest number that is exactly divisible by one-hundred. We all do this in the interest of saving and simplifying our time.
If the value of a product you are describing is lower, you will round up or down with more precision. We like to round numbers in all situations.
Many psychological behaviors traders experience directly influenced profit and loss. Still, this bias can easily be exploited in a round number trading system. Perhaps you have noticed before that your support and resistance levels seems to be very close to round numbers. See the chart above. You would be forgiven for mistaking these horizontal lines as support and resistance levels. These lines are round numbers, also known as psychological levels.
Can you see how the price is supported at the 0.
This chart gives numerous examples of the way round levels are influencing how the price is moving. For all of this to make sense, you have to remember why prices in a market move. Markets respond to the orders that traders make and the actions of participants in a market influence how prices move. The majority of traders will place their stop and limit entry orders and take-profit orders on or close to big round levels. A lot of traders who are unfamiliar with the bias for rounded numbers will also dangerously place their stop-loss orders on round levels too.