Using Round Levels
can open a whole new universe of trading opportunities when it comes to Binary Options Trading
. Whole numbers, or Round Levels are referred to by traders as psychological levels in the financial markets. I know what you might be thinking. By what means can something so basic, have such an immense effect, or even advantage me in my overall trading profitability. The answer is staring you right in the face. Without even realizing it we make use of round numbers on a daily basis. Human beings value simplicity. We are accordingly naturally inclined to round off numbers to make things easier for us. Think about it for a second, you do it when you go shopping, going to the gas station, buying a house or even when you're reading the temperature. Lets investigate what these levels truly are and how they can benefit you when trading binary options.
What Exactly Are Round Levels
Round levels are psychological numbers that end in a zero; a very good example of this is the 1.12000 level on the EUR/USD pair. It is important to know that the more zero's the number ends with, the stronger the level will be. These points in the market incline to act as support and resistance or it could additionally magnetize the price like a magnet. This will usually cause traders to instinctively place orders at or around these levels. When price reaches these numbers it can cause small bounces or huge reversals in the market. This is the reason why round numbers play such a gigantic role in trading. It is our job as traders to use this knowledge to our advantage.
How Round Levels Are Calculated
Round levels are likely the least demanding thing to calculate and plot on our chart. This is because we are so used to utilize them on a regular basis as previously mentioned. Round numbers work in a hierarchy as follows:
- this is the mother of all round numbers. It is when both currencies are equally matched. You see it once in a blue moon but you can be sure to put on your seatbelt if and when it happens. Example: 1.0000
- more commonly seen than the parity number. You can be sure to see some sort of reaction at these. Example: 1.1000
(one decimal place)
- they are seen on a daily basis and can yield some great trading opportunities. Example: 1.1200
(two decimal places)
- these levels are pretty weak but still tradeable. Example: 1.1250
(three decimal places)
- weakest one of them all. I would not recommend trading them. Example: 1.1210
How Can I Apply This To My Trading
Well, well here we get to the fun part you all have been waiting for. Just a few words of caution before we start... you should never ever trade these levels blindly. The circumstance will be diverse more often than not. It all relies on what is driving the price(fundamentals), how volatile the pair is, the time of day, the importance of that particular round level and most importantly which side of the bed the traders woke up on for the day. All jokes aside, the point I am attempting to make is that you should be an adaptable trader. You need to be able to read the different market conditions. The best way to trade these round levels would be to sit on your hands and wait for price action to tell you if there are any orders at that number before making any buy or sell decisions.
Metatrader indicator for round levels
As always, MetaBinaryOptions is offering you a free Metatrader
indicator for helping you apply this strategy.
Click here to download the indicator 100% free
The indicator will automatically draw round levels for you to make your life easier as a trader.
Figure 1 – Metatrader Indicator for Round Levels
Looking at the example below on the EUR/USD we can see how important these Round Levels actually are. As price reached the 1.11700 we saw our first little bounce, next it hit the 1.11800 and came down. After this the market consolidated and decided that it wants higher prices. Look how the 1.12000 area attracted the market like bees are to honey. This is what I was referring to earlier where these levels act as a magnet for price.
Figure 2 – Trading Using Round Levels
Price shot through the 1.12000 area and hit the 1.12100 level. Traders who traded the 1.12000 blindly most probably got their stoplosses triggered or lost the binary options trade. This is why it is so important to wait for price action to lead the way before taking any trade. After hitting the 1.12100 area we can see some huge sell orders getting filled against the big liquidity we had into this level. This selling caused a pinbar to form telling us that the market wants lower prices. Now sirens should be going off in your head and telling you to look for selling opportunities. Price cleared the way down and when it came back up to the 1.12100 it formed another pinbar. This was the perfect signal to short the market and had an extremely high chance of going in your favor. Your job as a Binary Options trader is to choose the correct expiry time to give the trade enough room to end In The Money.
Round levels are usually popular to trade counter-trend moves but they can also be used to take trades with the trend.
Round Levels Summary
In rundown I would prescribe you to preferably sit tight for the greater Round Levels than to make a go at squandering your time on the littler numbers. Watch the price action around them. These whole numbers or areas of interest can be an awesome tool to have in your arsenal if used the correct way. Make a point to take the time and teach yourself appropriately before going live. The more you use them the less demanding it will get to be to see potential trades. Use different time frames to get your preferred time interval that you like. Play around with the indicator and tell us what you think. Happy trading!