WorldBeta

A Simple Post on Gold

Lots in the academic literature on round numbers. One example:

"Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis.” - Osler, The Journal of Finance 58(2003):

"This paper shows that requested execution rates for stop-loss and take-profit orders cluster at round numbers, consistent with existing evidence on limit orders in stock markets. Its also shows that the pattern of clustering differs across order types and could produce the price behaviors predicted by technical analysis. Executed take-profit orders cluster more strongly at round numbers than do stop loss orders. Since take-profit orders should tend to reverse price trends, exchange rates should tend to reverse course at round numbers when they hit take-profit dominated order flow. Executed stop-loss buy orders cluster most strongly just above round numbers, and executed stop-loss sell orders cluster most strongly just below round numbers. Since stop-loss orders should tend to propagate trends, exchange rate trends should be relatively rapid after the rate crosses a round number and hits stop-loss dominated order flow."