I’ve been reading [U]Forex Patterns and Probabilities[/U] by Ed Ponsi. He touches on the subject of overall market psychology and how it can influence s/r lines and he mentions repeatedly that round numbers (like 1.2000 or 1.5500) are more likely to be used as s/r lines because we humans love 0’s and tend to place limit orders at such numbers. He also mentions how the big institutions can influence the market to increase volatility by tripping these limit orders.
Any thoughts on s/r lines tending to be found around numbers ending in 0, and is there any good literature on overall market psychology and how to incorporate that into a system? I’m coming to the conclusion that to be successful in Forex one must understand how traders act in mass and then plan acordingly.
This is absolutely true. I only trade GBP/JPY, so I can’t speak for other pairs, but it always hovers around a .00 or .50 level. Also, most major highs and lows are around nice even numbers. Look at last months action, for example. In late October on GBP/JPY we hit a 10+ year low, with 138.99 being the low. It then bounced off that line and rose to 165.04 before turning and falling again. If you look back through the charts major swing highs/lows are within a few pips of .00 or .50 levels quite a bit of the time.
I think people forget that a forex chart is a chart of human emotion and psychology. The market is not an inanimate object, it is a visual representation of human action. If you can predict that action, you can predict the market!
First off, that post is a year old. I trade more than GBP/JPY now, although it still makes up most of my trades.
I like that pair because of the way it moves. In my opinion tends to trend more than most other pairs, and the reversals and breakouts tend to move farther, resulting in more pips per trade.
