Psychological whole numbers
Psychological whole numbers in technical analysis plays a major role with professional traders. They offer key areas of support and resistance. If you have been studying technical analysis for any length of time you will no doubt have realised that price action has a tendency to react to whole numbers.
Let’s take a look at a 1-hour chart in example A, of the USDCAD pair. We can see that price action gravitated towards the 1.2900 whole number level on the left of our chart, and when it failed to reach it, price action fell back to the 1.2800 whole number. Subsequently price action rebounds to the 1.2900 number and eventually moves higher to the 1.300 whole the number which holds as a level of resistance, before price action toos and fros between the 1.3000 and 1.2900 levels. Institutional traders and commentators call these types of numbers Double Zeros, so you might hear them say 1.30 double zero, or 1.29 double zero or ‘1.29 The Figure’ or ‘1.30 the Figure’, and this pretty much applies to all double zero levels in all Forex pairs.
Now let’s take a look at example B, and the EURUSD pair on a 4 hour chart where we can quite clearly see that whole number 1.1000 held as a line of support, and where price action moved higher in the middle of the chart to the whole number 1.1100, which initially held as an area of resistance, and where price action goes on to punch through it, before falling back again to the 1.1100 whole number, which is then acted as an area of support and where price action subsequently moved higher to touch the 1.1200 whole number, which acted as an area of resistance.
So what does this tell us about the psychology of the whole numbers? We humans like to keep things simple, we like to use limit orders with round numbers, we like to trade with round numbers, and if we know that everybody has this psychological trait, it is not unusual that we can see why traders use these whole numbers as psychological areas of support and resistance in order to take their profits, and also to place stop losses, and limit orders, at these whole numbers when they trade.
This type of psychology is embedded in our everyday life, we don’t seem to say to people that we will meet them at 10:07, or 10:17, for example. We are much more likely to say 10:00 or 10:15 10:30.
You wouldn’t go out to a bar and deliberately think to take £30.82P. You would just automatically take the £30.00 with you.
You wouldn’t go out with the intention of buying a car for £15,872.20P. You would most likely round it up to £16,000 or down to £15,7500 or £15,500. This is just the way that our minds are geared, and the same applies in the financial markets.
Let’s return to our EURUSD chart, this time it’s example C, and where we have now included another key number, the five zero, or 50 level, or as per the 1.1050 and 1.1150 as shown. These five zero, or 50 levels are also of significance in trading forex can quite often lead to areas of support and resistance as we have highlighted on our chart.
Therefore we need to have these key levels of whole numbers and 50 levels in our trading mindset because, because of their significance in acting as support and resistance levels. And of course we must appreciate the in forex trading nothing is certain, and that these numbers will not hold true in every single circumstance. However, if we look at our charts objectively knowing that price action does, in most cases, gravitate to and from these whole and 50 number levels it should offer us an extra edge in our trading.