Levels and zones
Round numbers
Prices ending in 00 or 50 attract orders, which is why price often pauses near them.
There is evidence for why price behaves this way. No published rule profits from it after costs.
Order clustering at round numbers is documented at one dealing bank. Evidence for a psychological barrier in AUD crosses was described as some but not strong.
What it is
Order clustering at round numbers has been measured at a large dealing bank, with take-profits and stops sitting at different distances from the round price.
What it suggests
A round number is a reason for price to be busy near it. It is not a reason for price to reverse.
How to check it
Note the nearest round number when placing a stop or target, since many others place theirs there too.
Common mistakes
- Putting the stop exactly at the round number where others are.
Sources
- Osler (2003), Currency orders and exchange rate dynamics: an explanation for the predictive success of technical analysis, Journal of Finance 58(5) (abstract or primary page read)
- Mitchell and Izan (2006), Clustering and psychological barriers in exchange rates, Journal of International Financial Markets, Institutions and Money 16(4) (citation and headline finding only)
Related lessons
Written in our own words. Education only, not financial advice.