The Psychological Line Indicator, also known as the round number indicator, was first introduced by trader Mark McRae in his book “Sure-Fire Forex Trading.” The indicator is used to identify key psychological levels in the market, such as round numbers, that are likely to act as support or resistance levels.
What is the Psychological Line Indicator?
- The psychological line indicator is a tool used in forex trading to identify key levels in the market where traders are likely to take profits or enter trades.
- These levels are often found at round numbers, such as 1.3000 or 1.5000, and can act as important support or resistance levels.
The psychological line indicator can help traders identify major entry points in the market where traders are likely to take profits or enter trades. These levels are often found at round numbers, such as 1.3000 or 1.5000, and can act as important support or resistance levels. The indicator can be used in conjunction with other technical indicators to confirm trade signals.
The formula of Psychological Line indicator is a calculation that takes the number of rising periods within a certain period, divides it by a chosen number of periods, and then multiplies the outcome by 100 to present it as a percentage value.
The Psychological Indicator for MT4 is a tool designed for use in the Metatrader 4 (MT4) platform. It uses historical data to analyze patterns and trends in price movements. This technical indicator makes it possible to identify characteristics and patterns that are not visible to the human eye. By using this information, traders can anticipate future price movements and adapt their strategies accordingly.
Psychological Line Strategy
- The psychological line indicator sends a buy signal when the price of an asset has reached a key psychological level and appears to be bouncing off that level. This can be confirmed by other technical indicators such as the relative strength index (RSI) or moving average convergence divergence (MACD).
- When an asset’s price reaches a significant psychological level and seems to be breaking through it, the psychological line indicator generates a signal to sell. This signal can be reinforced by using other technical indicators such as the RSI or MACD.
Psychological Line Indicator Pros & Cons
- Helps traders identify key levels in the market where traders are likely to take profits or enter trades.
- Can act as important support or resistance levels.
- May not always work as expected, as traders’ behavior may change over time.
- May not work in all markets or for all assets.
The Psychological Line indicator can be a useful tool for identifying trend direction, as it typically falls above or below the 50-mark, which can indicate the direction of the trend. However, it may not be entirely reliable in detecting trend reversals, particularly in markets that are not trending. This indicator is based on traders psychology most effective when used as a mean reversal indicator, by noting if the line breaks through the range of 25 to 75, which can indicate a possible reversal pattern.
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