Tuesday July 5, 2022 - 09:40:19 GMT
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[Forex View] What Are Magic Levels and Why Do They Matter?
There is no magic in trading but there are magic numbers or levels.
What are magic numbers?
This is a term I came up with to describe chart levels that not only can be significant technically but can have a psychological or emotional impact on trading.
Magic numbers are levels that end in 0,2,5,8. such as 1.00, 1.02, 1.05, 1.08, 1,10.
There are magic levels that can have an influence on day trading, such as those that end in 00, 20, 50, and 80 (e.g. 1.0300, 1.0320, 1.0350. 1.0380, 1.0400).
One would have thought that given the way mindless algos can influence trading that psychological levels would lose significance.
However, I have found the opposite. Magic numbers still matter.
Take the recent EURUSD trade for example. As the daily chart below shows, the key low set on May 13 was around 1.0350. This is a level that turned into the key chart level (just broken as I type) for this currency.
But there is more…
EURUSD 1.0350 is the midpoint of two magic numbers. 1.02 and 1.05. While it stays above 1.0350, the focus is on 1.05. Should this level be solidly broken, then 1.02 will come on the market’s radar as a potential target.
I started writing this article when EURUSD was trading at 1.0430 but as you can see, 1.0350 created a strong attraction and has just been broken.
So, watch 1.0350 to see if EURUSD can stay below it and use The Amazing Trader to guide your trading.
Feel free to contact me to learn more about using magic numbers to trade.
creator, The Amazing Trader
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