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.
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.
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.
Some Strategies
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.
The combination of Big Figures with technical indicators can create very strong trading strategies. A 200-period moving average near a Big Figure often doubles the support or resistance strength of a standard moving average, while an RSI divergence at a Big Figure often gives us reversal opportunities.
Data Review
Historical data has validated the statistical significance of Big Figures in forex trading. Price action lessons have been examining the measurable effects such as big figures in terms of psychological levels.
Studying the data from the EUR/USD price action over the last 5 years, the data demonstrates some interesting patterns. Based upon the lack of randomness, EUR/USD clustered around the round numbers also demonstrated that the exchange rate is rarely 5 pips away from a Big Figure, tending to cluster at those levels: 1.10, 1.15, 1.20 or near to them.
Common Mistakes & Risk Management
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.
False breakouts are why many Big Figure trading accounts are blown up. Oftentimes, the price moves through the round number and then back down quickly. Many traders follow the price action without properly confirming and thus lose money all the time.
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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