But for the sake of this article, rounded levels are those price levels that are easily divisible by They often end with two or more zeroes. Traders often place their trades around the rounded key levels because it is psychologically easier and simpler to trade at The image above shows how round levels automatically drawn by the Round Level indicator are forming key levels on the weekly USDJPY chart.

Key levels are like price magnets. The price is always moving towards them. And this presents a trading opportunity for you. The key level approach trading strategy involves buying or selling in the direction of the key level. For instance, if there is a horizontal key level that serves as a support, you could enter a sell trade and set your take profit on the key level. However, this level is best traded on horizontal and rounded key levels.

Trading it on a slanting key level would mean buying in a downtrend. To put it simply, you would be going against the trend, which is a very risky approach to forex trading. This is a trade setup only contrarian traders would trade.

Key levels in forex are tough to break. The price level would approach a key level serving as a resistance, for instance, hit the level, and bounce back in the direction it was initially coming from. The key level bounce strategy exploits this price behavior. 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. Traders may do this consciously, or even subconsciously. Check the image below, taken from our depth of market snapshot tool , you can see how orders are clustered at round levels. The fact that round number levels have a significant influence on the market cannot be denied and should not be overlooked. These psychological levels are used by both retail Forex traders and major banks that deal in Forex.

This theory explains why prices seems to lose momentum, even in a strong trend. See the chart below, most price reversals shown are aligned with round-number price levels.

Price reversals at round numbers happen because traders create sufficient trading volumes that allow the price to bounce off these levels and move in the opposite direction. When price approaches these levels, the number of trades and trading volume increases, and the price moves in a more dynamic way.

Now you know why round numbers have such a significant impact on how the price of a currency pair moves. But how can you put that theory into practice and apply a round number trading system?

To recap, an overwhelming majority of participants in the Forex market, and other asset classes for that matter, have a tendency to place their entries and exits near round levels.

The price naturally moves towards these clusters, because market orders must be matched against other orders in the book. Trading round numbers in Forex allows you to increase the efficacy of setting a take-profit, a stop-loss and identifying the right levels to open a trade. For those who do not know what parity is, it is simply when 1 unit of a base currency equals 1 unit of the quote, or counter, currency.

The blue lines highlight additional key levels in the market: 1. The green lines show mid-level numbers: 1. Although price action does respond to these lines, we tend to give them less weight than their bigger brothers mentioned above. There are a number of techniques that employ these levels, with the most obvious leaning toward either fading or attempting to trade a breakout.

Although there are traders out there that do make this work successfully, we found it incredibly challenging. How we make use of these levels is simple. As you can see, a few pips above the area there is a psychological level.

This, along with the eye-catching demand, increases the odds of a successful trade. With that being said, however, we would not stop there. We personally have found no currency to respect round numbers any more than others.

What we have seen over time though is how price whipsaws through these levels time and time again. We remember back to the countless times these levels held and reversed price s of pips.

So, we place a pending order with stops pegged pips beyond the number. Price then steamrolls its way into the order and then takes our stop. Following this, price painfully reverses and trades in favour, typically leaving the trader frustrated.

You see, these levels are a magnet for orders! It is our belief that the big players in the market know this and, at times, use it to their advantage. Price is approaching a large round number support 1.

You know that there are often both buyers looking to fade the level, and sellers looking to sell the breakout. Now say that you and a few other banks collectively begin selling at 1. This forces the market to cross swords with 1. Remember, it is at this point that the banks have only sell orders in the market, and in this scenario they need to be long.

With that, upon connecting with 1. Once bank short positions are liquidated, they can then begin buying. Just to be clear, we are certainly not saying that this is how price action moves each time a psychological level is in play.

It is merely our reasoning behind why fakeouts occur at these price points. Using the numbers to add weight to an area has a great deal of value.

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Red and Blue squares indicate short-term up and downtrends. Red and Blue squares with the white dot indicate a little bit of powerful signals. Red and blue squares provide an idea about long-term up or downtrend in the future. A set of red squares indicates the future downtrend and a set of blue squares indicates the future uptrend.

Fibonacci levels also are there as up and downtrends. Blue and green support and resistance bars indicate the strength and direction of the trend. If the big blue bar is below the candles, then starts an uptrend, and If the green bar is above the candles that indicates a downtrend. The sizes of blue and green bars indicate the strength of the trend. the long and short zigzag patterns are also available to understand the different short and long trends.

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