Feb

24

"Invisible walls: Do psychological barriers really exist in stock index levels?"

Larry Williams writes: 

I've always thought the reason for resistance around round numbers is simply when traders decide where to place stops, targets and such they round up. The human mind naturally goes to round numbers. So it's not some mathematical magical thing happening, just how humans function. It was very clear in the old days when brokers would ask where a client wanted to place her stop that the reply, based on my research with several brokers, was always round numbers or .50.

Theo writes: 

The paper offers nothing new. They apply the exact same methodology that Donaldson and Kim (1993) applied in the Dow (you can read it for free here). The majority of the academic papers I've seen on rounds focuses on the index levels and not on futures prices. Also most of them approach the subject from the scope of clustering of particular digits whose applicability in real trading is limited instead of looking at market behavior around those levels. 


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