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The Importance of Big Figures in Forex Trading Part II β A Real-Time Example Using the EURUSD
I recently wrote an article, the Importance of Big Figures in Forex Trading and the recent price action in the market is a good example to illustrate this point. In this article, I will show how pivotal big figures (round numbers) had an impact on the market and how they might influence what lies ahead. In addition, I will show a twist on this and how a non-pivotal big figure sent a signal to the market using points illustrated in another article I recently wrote, Forex Trading Patterns: Repeat Trades. These articles can be found by clicking on the following links The Importance of Big Figures in Forex Trading and Forex Trading Patterns: Repeat Trades.
I define pivotal big figures as market prices ending in 0, 2, 5 and 8 (e.g. EURUSD 1.30, 1.32, 1.35, 1.38, 1.40). In the EURUSD downtrend that started with the high set on December 3, 2009 at 1.5141 and ended (so far) with a low on March 2 at 1.3435, the 1.35 level became a battleground. What I mean by this is there was a battle for 1.35 in which the bear side failed in its attempt to establish below it. The EUR/USD traded below this pivotal big figure on 5 separate occasions from February 19 to March 2 but never closed below it. This was an early warning sign of buying interest below 1.35 and that the trend might be running into tough support. I noted this in Forex Trading Patterns: Repeat Trades,
One observation I made during the current EURUSD downtrend is that it tested sub-1.35 on several occasions, including making new lows, but did not close below this level. In this case, a repeat βcontraβ trade would be to buy sub-1.35 once you sense a low has been made and hold for a move back above 1.35. Only a close below 1.35 would break this pattern.
What followed was a cautious move higher that established support above the pivotal 1.35 level. This initially led to consolidation that further drained momentum and slowly shifted the risk to the EURUSD upside. This was a reluctant move as the market remained bearish on this pair but price action suggested otherwise. In any case, the failure to hold below the pivotal 1.35 level eventually setup a run to the upside and the next pivotal level at 1.38, which became the target once 1.35+ was established as support. The high on March 12 high was 1.3796 as the market made a run for 1.38 but paused when it was not tested.
What Lies Ahead Using Pivotal Big Figures
With the focus shifting to the upside, the next battleground is the pivotal 1.38 level with some key chart points lying above it (e.g. Feb 9 high at 1.3839). Should 1.38 be firmly broken, then the pivotal 1.40 big figure comes on the radar, with a key resistance at 1.4026 (Feb 2 high) looming above. A failure to firmly establish above 1.38 would see momentum slowed and the market trade back within 1.35-1.38 before deciding whether to push on or fall back. The other alternative is the market trades around 1.38 before deciding whether to push ahead or not. The point is the pivotal big figure 1.38 will decide what comes next.
I mainly look at pivotal big figures and give less importance to other round numbers in forex trading. As a result, I was late to the party recognizing that the EUR/USD kept printing 1.36 each day despite being in a downtrend. It was one of the professional members of GVI Forex who pointed it out and alerted us to this pattern. The EURUSD had printed 1.36 in 19 of 21 days before breaking the pattern on Thursday, March 11 and confirming it on March 12 by breaking the major trendline drawn off 1.5141 (see chart). We noted in Forex Trading Patterns: Repeat Trades that the EURUSD had been closing each week in a tight range around 1.36 but did not pick up the fact until late in the game that it had traded this level during some point for each day during the past month. This at least gave us time to recognize a signal once this pattern was broken.
To sum up, pivotal big figures are important indicators as they not only tend to be battlegrounds for the market, but because there is a psychological or emotional component to them. This impacts market sentiment and can encourage price action as a result. In the current market, EURUSD 1.38 is the pivotal big figure to watch for whether the market makes a run for 1.40. Other pivotal big figures include USDCAD 1.02 (below it puts 1.00 on the radar), EURJPY 125, USDJOY 90 and 92, GBPUSD 1.52 (following a failure to establish below 1.50), EURCHF 1.45 (next line of defense for the SNB), AUD .92. Note, pivotal big figures are only one tool but can be a useful one when combined with other analysis.
Jay Meisler has been trading the forex market for more than 30 years, as an interbank dealer, fund manager and independent trader. He is a co-founder of Global-View.com the leading forex discussion site and home of the original forex forum. Global-View is a place where traders come for forex trading ideas, latest rumors, flows and breaking news.
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