Round Levels Indicator
Analysis of the behaviour psychology of forex market participants by using the round levels indicator. Increasing the trading system profitability thanks to the insight into the behaviour of traders near the round levels.
Description
Unfortunately, the basic settings of the MT4 terminal don’t include any indicator that automatically draws key price levels on the chart. The free Round Levels indicator can help with the construction of such levels.
Round Levels Indicator description and features
The RoundLevels indicator automatically draws round levels on the chart. They’re also called psychological levels.
Round levels are considered as levels equal to integer, half and quarter values. For example, these levels can be the following price numbers: 1.10000, 1.10500 and 1.10250, respectively.
As a rule, integer and half levels are considered the most important.
The example above shows that price quite often interacts with such round levels.
Noteworthy, a large number of orders for closing positions are often accumulated behind some round levels. These may be stop-losses, take-profits, as well as pending orders for new positions.
The importance of these levels lies in the following fact. If they are broken, some traders will have losses while others will make profits.
Look at the example above. It would be difficult for a trader to hold a trade when there is a cumulative profit made on an open sell trade from a resistance level. It is because the price clearly doesn’t want to go below the round level marked with an oval.
The weakness of the sellers is also signalled by the repeated appearance of the candles’ long shadows.
The same situations when the price actively interacts with the round levels are repeated quite often.
Exactly in these cases, this indicator helps with the analysis of the chart.
When the price approaches such levels, traders are put under serious emotional stress. No one wants to lose money but everyone wants to earn it.
For this reason, round levels are called psychological levels – the intensity of emotions next to them is extremely high.
How to Trade using the Round Levels Indicator
The round levels indicator, like any other indicator, can be just an additional signal in your trading system.
Therefore, the best way to use it is to combine it with your main trading strategy.
There are only 2 phases of price movement – trend and flat. So let us consider the use of the indicator on the example of these market conditions.
Indicator usage for trend trading
As one of the most popular technical analysis tools, we will use the free AutoTrendLines indicator. It displays on the MT4 terminal chart an actual trend line.
The renewal of the lows, though not a strong one, is the first signal of possible interest in selling. This suggests that there are no willing buyers at such low prices.
As the price approaches the downtrend line and the round number price level, the growth wave is followed soon enough by a sharp decline wave.
At this point, you can open sales at the market price. Stop-loss should be set over the last price maximum.
Indicator usage for trading during a flat period
Same as in the case of a trend, using the round levels indicator in the flat movement is only an additional signal.
Support and resistance levels help us determine whether the market is in a flat state.
To display these levels, we will use the free SupportAndResistance indicator.
A brief flat is shown on the chart above.
Its lower boundary is a combination of the support zone and a strong round level. In addition, there are long candlesticks’ shadows, which indicates the interest of buyers.
Therefore this signal may be safely executed.
For this, you should buy after the breakdown of the level, from which the last down wave started. This level is marked with a red dotted line.
To be on the safe side, a stop loss should be set behind the support level and the round level. Likewise, the deal will not be knocked out by the candlesticks’ shadows, which happens quite often.