Trading in Forex is closely related to the psychological factor. It is because of the psychology of traders that sudden surges in supply and demand may appear, which ultimately undergo correction. Trading from Forex levels is a separate indicator-free strategy that seems relatively reliable, as the price most often rebounds from the levels. But large market makers are also aware of this. They use it for their own purposes, “cutting off hamsters”.
Trading from Forex levels
Psychological levels are the boundaries of the corridor in which the price is located, which is influenced by the decisions of investors that are not related to fundamental factors. Most often observed in the flat, appear near the round numbers. And the more zeros, the stronger the level. For example, 1.3000, 2.6450, etc. Usually at round levels, traders try to fully or partially close positions, as well as place security warrants.
- Entry point. When trading from Forex levels, the entry point is located a little further than the level itself (the principle of trading “on the breakdown”). For example, there is a strong level of 1.3600, an order to open a long position is placed slightly higher at 1.3620. If the price goes up and reaches 1.3600, it faces a large number of closing orders, and then turns down. The order placed above does not work and the trader loses nothing. It is important to place an order above the possible correction. If the price still breaks through the level, but then it turns around, the order should not be hooked. As soon as the price reaches the level of 1.3620, the order triggers, pushing the price even further. Other traders also see that the price has passed the psychological mark, and also open new deals in the direction of the breakdown.
- Confirmation. This implies local levels of support and resistance, as well as Fibonacci levels, which provide additional confirmation of psychological lines.
- Point closure. Profit target, respectively, is set slightly below the psychological level. For example, if the transaction is open at 1.3620, then you should not risk it, it is better to place orders at 1.3645 and 1.3695.
General trading rules by level:
- Do not place orders precisely on levels, as they can be easily removed by market makers;
- make a margin for a possible correction;
- Analyze the fundamental factors that can cause breakdown.
On the rules of setting stop-loss in accordance with the psychology of institutional market participants read here.