Unveiling Crypto Market Insights - Round Numbers

13 Mar

GM Bitstampers!

In our previous post, we described the basic concept of support and resistance. Now, we'll explore the significance of round numbers in acting as support and resistance.

Importance of Round Numbers as Support and Resistance
John J. Murphy highlights the relevance of round numbers as support and resistance in his book "Technical Analysis of the Financial Markets" : "There is a tendency for round numbers to halt advances or declines. Traders often consider important round numbers like 10, 20, 25, 50, 75, 100 (and multiples of 1000) as price objectives and act accordingly. Hence, these round numbers frequently serve as 'psychological' support or resistance levels. Traders can utilize this information to begin taking profits as an important round number is approached."

Example of Round Numbers as Support and Resistance
Murphy provides a compelling example using the gold market: "The 1982 bear market low occurred precisely at $300. Subsequently, the market rallied to slightly above $500 in the first quarter of 1983 before retracing to $400. Similarly, a gold rally in 1987 was halted at $500 again. Between 1990 and 1997, gold repeatedly failed to breach the $400 mark.

The Dow Jones Industrial Average also exhibits a tendency to stall at multiples of 1000. One practical application of this principle is to avoid placing trading orders directly at these conspicuous round numbers. For instance, when attempting to buy into a short-term market dip in an uptrend, it's advisable to set limit orders just above an important round number. Given that others are also aiming to buy at the round number, the market may never reach it."

Placing Orders Around Obvious Levels
Murphy advises caution when placing orders around round numbers: "Traders aiming to sell on a bounce should set resting sell orders slightly below round numbers. Conversely, when setting protective stops on existing positions, it's wise to avoid placing them at obvious round numbers."

ETH Trading Around the 4K Level
On Monday, ETH/USD closed above the 4K level for the first time since 2021, only to close below it the next day.

What's your prediction for ETH's next move? Which round number do you believe will become the next significant level?

Share your thoughts in the comments.