Today at the open, I was watching the ES futures flop back and forth across the big, round number of 900. I have qualitatively observed that price tends to stop and vacillate across big, important levels such as this. Illiniry on Twitter asked me if there was any statistical basis for this. Good question!
I busted out Think Desktop and made a simple indicator. Over the last 20 day period, I counted how many 1min candles touched a given price level on ES. Here’s an overview of what the price action looked like over that 20 days (this is a 5min chart since I couldn’t get the 20 day 1min all on one screen, but you get the picture):
As you can see, we were in a general uptrend, between roughly 810 and 900 on the ES. Here are the results of the 1min candle touch testing for the various price levels:
My initial observations are these:
The biggest touch point was near 855, which also happens to be near the midpoint of this range. So that could just be because we spent more time near this level than at the levels near the end points, so we got more touches. It also appears that the local mid-points between even 5-point levels were more often peaks than the actual 5 point levels themselves, though the peak was usually not significant. Note that the low number of touches at 900 is because we only got there yesterday This will be interesting to revisit 20 days from now.
However, there were well defined spikes near 840, 855 and 870, with deep troughs on either side. This lends weight to these round numbers being significant. Note that these levels are also close to standard fib ratios between 800 and 900, which makes some sense.
One odd thing is that 850 was actually a low frequency level. Totally counter-intuitive!
In conclusion, 20 days is not enough time to do a significant test, but I’m limited to Think Desktop’s abilities for now. This cursory study was quick and easy to do, and answers a few questions while creating some new ones. It seems to point toward major round numbers acting as a magnet, though a 5-point range definition of “round” appears to be too small and in the noise.
Leave a comment with your thoughts!