Big Round Numbers – Trading Strategy Scenarios

Big Round Numbers – Trading Strategy Scenarios This article will look at the London open on Friday 21st September and how the EUR/USD was trading around the big round number 1.3000. The price action and order flow dynamics gave a few interesting setups which fit in with my favoured approach towards trading the markets. You can see another article on Forex round numbers here. Lets’s start with a look at the first move into the 1.3000 round number level. The first chart below shows the EURUSD hit 1.3000 earlier this week and found support. This has given a recent reference point indicating that the market may have order flow in place around the 1.3000 handle. We then zoom out and see that the second chart below shows the EURUSD on a weekly timeframe chart – this clearly shows that 1.3000 has been a key level when referencing the bigger picture. So back to today; price found initial resistance and retraced around 20 pips after hitting 1.3000. Aggressive touch traders may nave seen this as an opportunity to short knowing that price had rallied around 80 pips since yesterdays low and was hitting lower and higher timeframe resistance. A bearish engulfing candle was formed after the initial hit on the big round number. Price then dropped around 25 pips after moving below the bearish engulfing low (triggering the break); price action traders may have seen this as a confirmed entry to short the EURUSD with a stop loss above the 1.3000 handle and taken profit around 1:1 risk reward, or moved the stop loss to break even after a certain amount of profit was locked in. The above is of course highly discretionary but the scope was there to potentially adopt either of the above trading strategy approaches. The EUR/USD is the most liquid currency pair available and therefore more suited to this kind of approach than some of the more exotic forex crosses. EURUSD Chart 1 EURUSD Chart 2 With the above in mind many market participants would have been looking for a scenario giving continued downside. At this stage the euro found strength and rallied hard into the big round number. A simple break above the morning range highs (around London Open) will often result in a high momentum breakout but the setup today had much more going for it. •A break above the European opening range highs for EUR/USD •A break above the 1.3000 round number with potential order flow in place following the earlier bounce (potential stop losses and speculative buy orders) •A break above the trend line as can be seen on the chart below (trend line was omitted from earlier charts for clarity) This gave a confluence of events hinting that a breakout could possibly be met with additional volatility. And this is exactly what transpired as the breakout took place. This also gives a good example of why traders need to keep an open mind, especially on the intra-day basis when the trend can turn on a dime.