Psychological levels of Forex.

Forex trading is closely linked to psychology. Psychological factors often cause surges in supply or demand, which inevitably impact exchange rates.

Forex prices typically move within a certain price range, often defined by so-called psychological levels. Where are these levels located, and how are they formed?

Psychological Forex levels appear around round price values, as most traders believe that the price, having broken through a certain value, is more likely to move further than reverse. Examples of such levels include 1.2000; 1.3500; and 2.7550.

The more zeros in the quote, the stronger the psychological Forex level. However, it's not all that simple. Therefore, false triggers of pending orders , or beginners simply suffer losses, wondering why a breakout hasn't occurred.

Entry point.

When trading using psychological levels, the entry point price is located slightly further than the level itself, usually a distance of several dozen pips.

This means that most orders are placed not at 1.2700, but at 1.2720. As a result, the price reaches 1.2700, but since there is no increase in volume at this point and no increase in supply or demand, it successfully reverses.

If the price breaks through 1.2720, a massive wave of trades is opened, which only accelerates the trend toward a breakout.

Confirmation.

When trading psychological levels, it's a good idea to pay attention to current support and resistance lines . They serve as additional evidence confirming a breakout or, conversely, reinforcing doubts about its authenticity.

Profit targets.

If you opened a trade at 1.2720, the most favorable take-profit points would be 1.2745 and 1.2795. Why these values ​​and not the usual round numbers?

Because, not only can the price breakout psychological levels, it also readily reverses when approaching them, so why risk a few pips?

Incidentally, many traders also successfully utilize the reversal momentum in their trading, but in this case, Forex orders are opened after the price bounces and begins to move in the opposite direction.