Big Figures constitute one of the most valuable concepts in forex trading that all traders must have a grasp of. The term Big Figure refers to the first few digits in a currency quote that create psychological barriers within the market. For example, when EUR/USD trades at 1.1050, the Big Figure is 1.10. When a USD/CNY quote is 6.95, the Big Figure is 6.9.
These are round number areas that act as magnets for the forex market. They capture the interest of traders around the world and have a naturally occurring support and resistance level. Professional traders use Big Figures to determine their entry and exit plans, while many beginner traders might use them as a reference point regarding market sentiment.
Big Figures are more than simple maths, Big Figures illustrate how human psychology impacts the movements of the market. They demonstrate where emotions such as fear and greed are heightened. Intelligent traders recognize these issues and their patterns, and utilize them to capitalize on opportunities.
Definition & History
A Big Figure highlights the main digits in a forex quote and are used by traders as an important psychological reference. These are usually the first two or three digits before the decimal point and in some cases the first digit after the decimal point as well. The definition comes from the old open trading floors where traders would quote the small digits and simply assumed the whole market would always be accountable for the big figure.
The history of Big Figures can be traced to the origins of forex trading when traders would execute trades over telephone lines between banks. A trader would say EUR/USD is at 50-55 rather than saying it is at 1.1050-1.1055, with the belief that everyone would inherently know it was 1.10. These smaller iterations of the price over the telephone became the foundation for what we now call Big Figures.
Then in the 1970's as forex markets became open to retail and easier access, retail traders also began to follow a similar convention of their institutional counterparts. The emergence of the electronic revolutions was around 1994 and it was at this point that Big Figures became more relevant as traders had detailed correspondence on their computer screen for each currency. It also made the big figures in the price much more visually exciting and impactful for traders to see as they are usually round numbers.
Psychology
Ultimately, it is psychology driving the strength of Big Figures in the forex market. Our brain recognizes some numbers represent more than others. Humans get more stressed or excited about round numbers than random numbers. This cognitive bias also leads to self-fulfilling prophecies in trading.
When the EUR/USD approaches 1.10 traders get excited - Some traders fear a break below 1.10. Others are excited about a potential break above. The emotional stress heightens trader volumes and volatility.
Psychologically driven support and resistance levels at the Big Figures do work because millions of traders think the same way. Everyone knows 1.10 is important to the EUR/USD, so it even becomes important in terms of market behavior.
Some Strategies
How to deal with Big Figures is a different part of the strategy to learn for successful forex trading. These strategies can be used in different time frames and different market conditions.
For example, intraday traders often use Big Figures as precise entry and exit points. As the price of EUR/USD comes into 1.15, they look for rejections to sell short. If 1.15 is broken with conviction and volume, they ballpark that level and this would become a buy. Their stop-loss in this case would be a limited distance beyond the Big Figure.
Common Mistakes & Risk Management
There are particular risks when trading around Big Figures that traders should be aware of and manage in the correct way. Many positive trading strategies fell because they ignore these common mistakes.
The main error is treating all Big Figures the same. Not all round levels have the same psychological importance. For example, EUR/USD at 1.10 has a much bigger significance than EUR/USD at 1.13. Why? Because 1.10 is a big psychological number.
Advanced Tips & Practical Application
Professional traders implement sophisticated techniques to optimize their Big Figure analysis. These Advanced strategies set apart the nagging novice trader to the successful trader.
Multiple Big Figure analysis is an improved timing tool. When faced with multiple round numbers in a single time frame, across multiple currency pairs, the psychological impact is greater. For example; USD strength at multiple Big Figures across the EUR/USD, GBP/USD, and AUD/USD creates stronger directional bias.
Learning Resources and Practice
To become proficient with trading Big Figures, you need to engage with Best practice tools and trading platforms. You cannot develop trading skills to be much more consistent or profitable simply by learning theoretical knowledge.
Demo trading platforms allow for risk-free Big Figure practice. MetaTrader 4 and 5 provide really good chart analysis tools to study round number actions. TradingView has fantastic charts for advanced Big Figure identification capabilities.
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