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Did You Know Many Markets Have Psychological Resistance Barriers?

Did you know that many markets have psychological resistance barriers? Knowing where these numbers are located can help you plan your entries and exits better. We will cover the psychological resistance number for each of the following markets:

1. Canadian Dollar
2. Cocoa
3. Corn
4. Cotton
5. Crude
6. Silver
7. Soybeans
8. e-mini S&P
9. US 30 year T-Bonds
10. Wheat

NOTE: this list is far from exhaustive. These numbers exist in all markets!

This topic got a good discussion going at the Support and Resistance forum and I want to extend a BIG THANK YOU for all who took the time to give your input!

If you've read any of the posts at the forum you will have realized that the psychological resistance usually occurs at the whole and half way points in many markets. The whole/half numbers vary from market to market, but look at any chart and you will find this to be true.

Common sense also dictates that this should be true. Most of us are better at adding numbers that end in "0" or "5" than adding other numbers. Traders in the pits are no different. So what does that mean for you as a trader? Basically it is to avoid whole and half numbers when you are placing your orders. You will notice I do this all the time in my orders, and you should learn to do the same.

For example, take a look at the current December euro (6E 12-12) chart. Look back the last month or so.

What do you see? Do you see the hits at 1.2602, 1.2583, 1.2589, 1.2585? What is this telling you? As big a ranging market as the 6E is, all this activity in this particular area is nothing more than a reaction to the 1.2600 line, but given the market's momentum, rates have fudged the line and made it difficult to see. Make no mistake however, this is showing us resistance at 1.2600.

Therefore when we planned our trade to buy the 6E we used a break of the 1.2600 resistance line as a trigger. Where would we put our exit order? Would we put it at some arbitrary number? Of course not, rather we would look for a nearby resistance area which we could use as support. Fortunately we didn't need to look too far as there is a lot of activity at 1.2492, 1.2476, 1.2479, which is nothing more than support at the psychological resistance at 1.2500 Therefore we placed the exit order below the 1.2500 line, to give us a better chance of staying in this trade.

1. Canadian dollar: by 25s: xx.00, xx.25, xx.50, xx.75

Most currencies, including the CD, exhibit psych-resistance at 1/4 points. In most cases this translates into 25 points. Therefore we would anticipate the market to become sensitive at 9900, 99250, 9950, 9975, etc. Of these the strongest would be the whole and the half: 9900, 9950.

2. Cocoa: by 50s: xx00, xx50

For some reason cocoa likes to move in $500 ranges. While there will be overruns and under runs, you'll find most resistance occurring at the 50's: 2300, 2350, 2400.

3. Corn: xx0, xxx 1/2

Corn is particularly sensitive to the whole and half numbers 1/2 literally. I was probably a little too picky on this one as most people identified the wholes (720, 730, 740) but no one got the halves. We almost never enter a corn trade at 0 or ½. Instead we will enter at either the 1/4 or 3/4 points.

4. Cotton: by 50s: xx.00, xx.50

Cotton seems to like the 50s and wholes as well, although you could make a case for the 25s: 8750, 8800, 8850. It is not uncommon for cotton to severely fudge these numbers given the market's huge volatility at times.

5. Crude: by 50s: xx.00, xx.50

Crude loves the 50s and 00 numbers. You can often expect significant support or resistance to occur near them as traders react to these numbers. Of course crude can become extremely volatile, so expect it to "slip" past the actual number a bit.

6. Silver: by 50s: xx50, xx00

This one's a little less precise; however, tends to favour the halves and wholes of a number (3100, 3150, 3200, 3250). If silver prices continue to soar we might expect these values to open up a bit, in which case silver might come to respect of the whole number over the half.

7. Soybeans: by 50s and 100s: x000, x100

Beans definitely like the 100s but will respect the 50s most of the time. You'll find the strongest resistance occurring near the wholes in 100 increments even though it might not be right on the whole number: 1400, 1500, 1600.

8. e-mini S&P: xxxx.00, xxxx.50

The S&P is a classic whole and half number market, although there can be serious fudging from this potentially fast moving market. Even so you should anticipate resistance to come at, or near the whole or half number.

9. US 30 year T-Bonds: by 16/ths: xxx-00, xxx-16

This was a gimme for anyone who's ever paid attention to our bond commentary. Bond traders live their lives in quarter points but most only pay attention to the halves and wholes, which in bonds translates to xxx-16 and xxx-00..

10. Wheat: xx0, xxx 1/2

Wheat of course, is essentially the same as corn in relation to pricing and as such it will behave the same. Here too we avoid buying/selling at the whole or half way points giving preference to the 1/4 and 3/4 values.

Whether you are planning a trade entry or exit you will always want to make sure you place your buy/sell order on the other side of the "psychological" resistance to improve your odds. The same is true if you are trying to trail a stop loss order. Now that you know the market will tend to respect certain psych-levels (it will show you), pay more attention to those numbers as you adjust your trade.

Does this mean you'll never get whipsawed again? Unfortunately not, but by following this simple rule you will increase your chances of getting into, and staying with, a good trade.

-Erich.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.