Stocks, indices, currencies, and futures tend to have a magic area at the 100, 200, 600, 9300, 12000 and so on levels.  If you can divide the current market value by 100, you have the next magical level.

Why is this?  Is there a gold medal behind these nice round numbers?

 

There is some sort of sense of accomplishment when a stock price (representing a company’s worth), index, or currency pair reaches a level that is divisible by 100 and this event is watched closely by many traders.

Have you ever heard the news announce that the Dow has reached 22,119? Nope.  The financial pundits get over-excited when we reach 22,000, then 22,100 and that seems to be all they can talk about. Stocks also seem to retrace to these magical 100 numbers as well. Know that a market value divisible by 100 will most likely create psychological support or resistance.

Once we recognize this phenomenon, what should we do?

We could create a scan or filter that lets us know when a stock gets within 5 points of the 100 mark. We could create an entire trading system around this 100s anticipation.

Here is a sample filter:
1.  Stock has over 300,000 shares traded daily.  You want some excitement in the trading room which creates movement, preferably 500,000 to 1,000,000 shares traded daily.
2.  The stock should be optionable and preferably weekly options included.
3.  The Close price would be greater than 95 and less than 100.  You can create several filters for each level divisible by 100.  Example would be close greater than 195 and less than 200 and so forth.

Once you have your list of stocks from your filter, you can then look at each chart to verify the direction and probability of a trade.

Backtesting will allow you to have more insight into that stock’s behavior around a number divisible by 100.

Rob Roy has created many scans during his trading career and with the basics, you can create a scan on your own trading platform or purchase the WBHQ Trade Navigator charting system and start adding the Rob Roy libraries.

Share this: