Giles Coghlan LLB, Lth, MA
Financial Source
It is a well known behavioural fact that humans have a round number bias. We just like round numbers. During a visit to the gym recently keeping the RPM’s over 100 was a keen aim. If the RPM’s dropped under 100 something psychologically kicked in to give an extra push in order to hit the ‘big round number’.
This phenomena turns up all over the place. Look at the London Marathon finishing times and how they cluster around the big round numbers of 3 hours, 3:30 hours, and 4 hours.
Most of us are very familiar with pricing that keeps under a big round number. Most goods for about £3 will be priced as £2.99. Staying clear fo the ‘£3’ label, even by a penny, means more sales will be encouraged.
Humans love big round numbers as key reference points. You will have noticed this yourself when you say ‘I will close my position when my equity hits £10,000’ or ‘I will sell the stock when it reaches $100’. This means that traders need to be aware of this impact when trading.
The big round number effect
Whenever you are trading, this has a number of implications for placing orders.
For limit orders: Place buy or sell limit orders at, or near, big round numbers.
For a take profit : Place your TP just a few points BELOW a big round number
For a stop loss: Place your SL just a few points BELOW a big round number.
Also, keep a careful eye out for how big round numbers act as key support and resistance numbers. You will see how influential they are.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Editors’ Picks
EUR/USD rebounds after falling toward 1.1700
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GBP/USD steadies below 1.3400 as traders assess BoE policy outlook
Following Thursday's volatile session, GBP/USD moves sideways below 1.3400 on Friday. Investors reassess the Bank of England's policy oıtlook after the MPC decided to cut the interest rate by 25 bps by a slim margin. Meanwhile, the improving risk mood helps the pair hold its ground.
USD/JPY rallies to near 157.00 as Yen plunges after BoJ’s policy outcome
The USD/JPY is up 0.85% to near 156.90 during the European trading session. The pair surges as the Japanese Yen underperforms across the board, following the Bank of Japan monetary policy announcement. In the policy meeting, the BoJ raised interest rates by 25 bps to 0.75%, as expected, the highest level seen in three decades.
Editors’ Picks
EUR/USD rebounds after falling toward 1.1700
EUR/USD gains traction and trades above 1.1730 in the American session, looking to end the week virtually unchanged. The bullish opening in Wall Street makes it difficult for the US Dollar to preserve its recovery momentum and helps the pair rebound heading into the weekend.
USD/JPY rallies to near 157.00 as Yen plunges after BoJ’s policy outcome
The USD/JPY is up 0.85% to near 156.90 during the European trading session. The pair surges as the Japanese Yen underperforms across the board, following the Bank of Japan monetary policy announcement. In the policy meeting, the BoJ raised interest rates by 25 bps to 0.75%, as expected, the highest level seen in three decades.
Gold stays below $4,350, looks to post small weekly gains
Gold struggles to gather recovery momentum and stays below $4,350 in the second half of the day on Friday, as the benchmark 10-year US Treasury bond yield edges higher. Nevertheless, the precious metal remains on track to end the week with modest gains as markets gear up for the holiday season.
Crypto Today: Bitcoin, Ethereum, XRP rebound amid bearish market conditions
Bitcoin (BTC) is edging higher, trading above $88,000 at the time of writing on Monday. Altcoins, including Ethereum (ETH) and Ripple (XRP), are following in BTC’s footsteps, experiencing relief rebounds following a volatile week.
How much can one month of soft inflation change the Fed’s mind?
One month of softer inflation data is rarely enough to shift Federal Reserve policy on its own, but in a market highly sensitive to every data point, even a single reading can reshape expectations. November’s inflation report offered a welcome sign of cooling price pressures.
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