This is a follow up to the earlier post and is something most forex and stock traders are always aware of, and you should be too when entering buy and sell orders. Round Numbers.
We originally posted a week or so that if $4750 was broken the next target would be $6000. Nice round number. There is a whole psychological effect with people when seeing round numbers and why many, including myself, thought wow $5850 I'm missing out and need to buy, but $6000, nope too much! So more often then not these nice round become critical support and resistance levels in markets.
Remember the lead up to Dow breaking 20,000? Stalled right there and pulled back. Everyone was looking at that nice round number. But what does it mean? What 19,820 is a good entry level but 20,000 is too much? Well that's how we think. I mean how many TV programs run those adds for $19.99? You never see an add for $20. There is a reason why houses on the market that list for say $600,000 do not sell as fast as a house listed for $585,600. When people see a house listed at $600,000 they go well maybe they will except $540,000. A nice round number note they took 60k off. When they see a house at $585,600 they think well maybe they will accept $575,000 and we can settle on $579,000. See the house priced at $600k didn't appear to be as accurately priced as the one at $585,600. This isn't fiction this is true. Houses priced in round large numbers sit on the market longer and generally end up selling for less than the comparable house priced a little lower using non round numbers. This is the same reason you see car dealers $4999. Wow I'm paying under $5,000. Many studies have been done on this and the results are always the same. This is why 60% of prices end in a 9, and 30% end in a 5.
In forex this is just as common. EUR/USD $1.19 looks different the $1.20. so we often see stalls at these points. Most people use round numbers to enter buy, sell and stop limits. Hence you see them pull back at these numbers. Smart traders enter in non round numbers. $1.18734. A few pips less than $1.19 but more likely to trigger a sell order.
Anyways $6000 is that number. Just look at how we stalled at $1000,3000, and $5000 pulled back and then continued. I mean seriously if you bought in April at $1000 are you more inclined to buy at $6000 or sell? Do you think people new to the market will buy at $6000? Maybe, but they are more likely to buy at $5840 with a $6000 target. Yes it sounds ridiculous but it's just how things work. Hence our $6000 being a psychological stop!
$1000 is a key level for any stock or market. I remember still to this day when the S&P and Nasdaq broke those levels. Look at how amazon and Google reacted to $1000. This is why many stocks do splits. I mean the psychology of buying a $1000 stock forms a mental block. Way too much! Same here. $6000 is a huge number especially when it was below $1000 just a 6.5 months ago.
This may be the point where buyers remorse kicks in. You know you went to the car lot, bought that car for $29,950 on impulse and then when you got home and checked prices online you realized another dealer had it for $23,750? This could be that point where people go "WHAT WAS I THINKING BUYING HERE"! and start cutting their losses.
Anyways just something to keep in mind when approaching nice round numbers either way as you can see from the chart. Look at the run from just below $2000 straight to $5000, then pulled back 67% of that run. Currently we started at $3000 and have run to $6000. That puts us around $4100 if we pullback the same. Both were almost $3000 moves. Can you see someone going, well I bought at $3000 I want to double my money I will sell at $6000?
This is why Fibb levels work so well. They are psychological points where people think they are getting a deal, or paying too much. It's part of nature, and hence part of our natural instincts. Anyways just something I thought I would trow out there.
We originally posted a week or so that if $4750 was broken the next target would be $6000. Nice round number. There is a whole psychological effect with people when seeing round numbers and why many, including myself, thought wow $5850 I'm missing out and need to buy, but $6000, nope too much! So more often then not these nice round become critical support and resistance levels in markets.
Remember the lead up to Dow breaking 20,000? Stalled right there and pulled back. Everyone was looking at that nice round number. But what does it mean? What 19,820 is a good entry level but 20,000 is too much? Well that's how we think. I mean how many TV programs run those adds for $19.99? You never see an add for $20. There is a reason why houses on the market that list for say $600,000 do not sell as fast as a house listed for $585,600. When people see a house listed at $600,000 they go well maybe they will except $540,000. A nice round number note they took 60k off. When they see a house at $585,600 they think well maybe they will accept $575,000 and we can settle on $579,000. See the house priced at $600k didn't appear to be as accurately priced as the one at $585,600. This isn't fiction this is true. Houses priced in round large numbers sit on the market longer and generally end up selling for less than the comparable house priced a little lower using non round numbers. This is the same reason you see car dealers $4999. Wow I'm paying under $5,000. Many studies have been done on this and the results are always the same. This is why 60% of prices end in a 9, and 30% end in a 5.
In forex this is just as common. EUR/USD $1.19 looks different the $1.20. so we often see stalls at these points. Most people use round numbers to enter buy, sell and stop limits. Hence you see them pull back at these numbers. Smart traders enter in non round numbers. $1.18734. A few pips less than $1.19 but more likely to trigger a sell order.
Anyways $6000 is that number. Just look at how we stalled at $1000,3000, and $5000 pulled back and then continued. I mean seriously if you bought in April at $1000 are you more inclined to buy at $6000 or sell? Do you think people new to the market will buy at $6000? Maybe, but they are more likely to buy at $5840 with a $6000 target. Yes it sounds ridiculous but it's just how things work. Hence our $6000 being a psychological stop!
$1000 is a key level for any stock or market. I remember still to this day when the S&P and Nasdaq broke those levels. Look at how amazon and Google reacted to $1000. This is why many stocks do splits. I mean the psychology of buying a $1000 stock forms a mental block. Way too much! Same here. $6000 is a huge number especially when it was below $1000 just a 6.5 months ago.
This may be the point where buyers remorse kicks in. You know you went to the car lot, bought that car for $29,950 on impulse and then when you got home and checked prices online you realized another dealer had it for $23,750? This could be that point where people go "WHAT WAS I THINKING BUYING HERE"! and start cutting their losses.
Anyways just something to keep in mind when approaching nice round numbers either way as you can see from the chart. Look at the run from just below $2000 straight to $5000, then pulled back 67% of that run. Currently we started at $3000 and have run to $6000. That puts us around $4100 if we pullback the same. Both were almost $3000 moves. Can you see someone going, well I bought at $3000 I want to double my money I will sell at $6000?
This is why Fibb levels work so well. They are psychological points where people think they are getting a deal, or paying too much. It's part of nature, and hence part of our natural instincts. Anyways just something I thought I would trow out there.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.