Stages of Candle Passing Market Psychology Level

Psychological levels are market price levels or levels which are often key levels in forex which are denoted by round numbers. These round numbers often act as support and resistance levels.

Psychological support and resistance work consistently because of fundamental human nature. Humans value simplicity, from a trading perspective this means valuing integers. Traders often use these numbers as entry, exit or stop levels. These stops and limits can change the order flow and price changes.

Identifying Psychological Levels On Forex Charts

Traders will often call this integer interval 'double zero', as this price is at even numbers like 1.31000 for EUR/USD, 1.57000 for GBP/USD or 132.00 for GBP/JPY. The chart below identifies a 'double zero' on the current USD/JPY chart.

Some traders will take it a step further by looking at the number directly in the middle of this whole number or the 'fifties'. These levels, such as 1.31500 on EUR/USD or 131.50 on GBP/JPY can often play out in the same way as 'double zero'. Traders will notice that there will often be some element of congestion at this key level in forex as prices move up or down.

How to Use Psychological Levels in Forex Trading

AUD/JPY Weekly Chart

In many ways, untested psychological levels can be seen as pivot points. An area where there may be some element of support or resistance.

In general, a round number like 70,000 on AUD/JPY or 1,0000 on AUD/USD will attract more attention than a level slightly above it like 71,000 on AUD/JPY. Most traders will often assign higher power levels to more rounded intervals.

Where traders can really find value with these levels is when the price may have resisted or been supported previously. This tells the trader that others are watching and acting on the price, and the potential 'fulfillment of forecast' from technical analysis may potentially be considered more strongly.

Psychological Level Advantages and Limitations

Here are some of the advantages of the psychology level:

  • Serves as key support and resistance levels
  • Easy to identify for novice traders
  • Applicable to all financial markets

And here are the psychological level limits:

  • Not always 100% reliable as a key level
  • Should be used as a guide in conjunction with supporting indicators or technical analysis techniques

More info:
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