Wednesday, June 17, 2015

Small round number levels - do they work?

This continues on from my last entry.
I did some more research on round number levels. Do "small" round number levels like 1.51000 or 0.88000 work?
I tested data from September 2012 to June 2015, on the EURUSD, AUDUSD, GBPUSD, NZDUSD, USDCAD, USDJPY and USDCHF. I ended up with 545 sample trades.
Just like my previous research, I was looking for a candlestick wick to form off a "small" round number level, and enter on the break of the high or low of that candle. I only traded with the short-term trend. (example setup).
Results from 545 trades...
Profit factor for 2:1 reward:risk = 1.22
Profit factor for 1:1 reward:risk = 1.27
There seems to be an edge here. The profit factor is noticeably smaller than trading off the "big" round number levels, but you can still trade it, and your frequency of trades is much higher.