Despite its simplicity and ease of use many overlook the Figure, or Round Number… Every round number between significant price levels is likely to see price pause, or even react and reverse.
Possibly the best forex indicator and certainly the simplest for newbies to come to grips with is known in trader talk as “The Figure” or Round Numbers.
But although it’s the simplest indication of likely price reaction levels, it is often neglected by traders who are more interested in the complex, gizmo type indicators such as CCI, MACD, stochastics etc.
Round Numbers refers to pretty much what it sounds like: the numbers ending in one or more zeros, such as 0.9500, 1.0350, .8750 etc. On a price chart these figures are generally considered to rule off levels at the 50 and 100 mark.
For example, if the AUDUSD has just broken through $1.02, it is deemed to have broken The Figure at 1.0200. The next round number, or big figure, will be at the 50 mark: 1.0250.
You would do well to use it, as price very often reacts at these levels. Furthermore, if the figure also happens to coincide with other reasons for price reaction at this level, for example pivots, Fibonacci levels, old support and resistance levels etc this increases the chances of price reacting and turning at these levels.
In Metatrader 4, if you plot the indicator on the charts it looks like this (check out how many times price bounced at a Round Number on this chart!):
A truly excellent & fundamental indicator: Round Numbers
Why are these Round Numbers significant price levels? It’s because they represent psychological price points to the mass of traders.
For example, if a currency like the Canadian or Australian dollar approaches parity with the American dollar, the minds of forex traders everywhere are concentrated on that big figure: 1.0000.
If price breaks through, say to the downside, traders will look for the next area that represents a psychological barrier or support and resistance level. In this case it would be 0.9950 if price broke parity to the downside, and 1.0050 if price broke parity to the upside. It’s as simple as that.
So once more, as in Support and Resistance, we have an indicator that is extremely simple to plot and use. Nevertheless, it is often overlooked by traders who are scanning their charts looking for arcane levels at which price will turn based on more complex indicators.
But it need not be that hard: the KISS principle always pays off in forex trading. And in this respect, Round Numbers could easily be said to be the best forex indicator going.
N.B. don’t forget the Paleo Indicator, which incorporates the functionality of round numbers, as well as all the other powerful levels watched by the big dogs of forex. Also available in the Resources Center.