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When trading the stock indices (ES, NQ, FDAX, CAC40,...) intraday do you consider round numbers like 50-levels or 00-levels?
I always thought such levels must be relevant but when you look at the different indices you see that actually all the big indices are correlated at a very high factor...
So when the market moves it moves in every indices very similar no matter at what round number price might be in one certain indices...
Considering this assumption looking at round numbers when trading is actually irrelevant?
What are you thoughts on that issue? (because I am considering removing the horizontal round numbers lines on my charts alltogether...)
PS: would you handle round numbers different with currencies?
Can you help answer these questions from other members on NexusFi?
I consider whatever levels that has proven to be historically significant as sup/res.
But, no doubt that 00-levels are important thresholds for leading indicies such as Dow/S&P500. The proof for this can be found by looking at e.g. ES MP or daily charts a few weeks back. Remember that the market place is mainly consisting of human involvement, which is subject to the same tendency as everyone else to lay some extra importance on round numbers. Thus, you will often see fights taking place at these levels.
I would place less importance to round numbers in EU markets such as DAX, CAC40, FTSE, as I see them mainly as followers of the US indicies nowadays, rather than anything else.
I trade CL, and for sure .00 and .50 are very, very important levels. The first time price trades at that level that day you will see a very clear reaction to it. First, price tends to gravitate towards the level, and second there are usually a lot of stops at the levels so you will see it test, bounce, and re-test in a strong trend.
I think some instruments are more sensitive to round numbers than others. The Forex market is particularly sensitive to them. The S&P 500 is less sensitive so much that i don't consider them except for big fat round numbers such as 1000 or 1100. I know a commercial vendor that uses round numbers as a core component of his framework. His system does not use any other indicator than round numbers: The Trading Institute Reviews and Ratings | Steve Rising | Thetradinginstitute.com reviews
I started trading the Forex with his philosophy so i can assure you that round numbers can make you win money if you know how to tackle them.
thanks for your help guys... so i better still plot them on my charts - especially for currencies or oil... in the stock indices i rather have a look at round numbers from the us stock indices...
one other thing though - do you use the round numbers from spot or future market? i personally think that the spot market round numbers are the way to go...
Monroe Trout discussed the round no. effect(magnet effect) in New Market Wizards.
Based on my forward-testing experience, I do think that it works to certain extent especially in chaotic downtrend environment because there are many participants who got caught on the wrong side are rushing to the door to get out in turn exacerbate the downtrends making it faster to reach the round no.
conversely, if you see key levels being correct supported quicky and hold, you should go long quickly to capitalize on the situation.
