What Your Eyes Do When You Look at Charts (And Why It Can Make You Money)

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Happy Sunday.

Okay, this was fun a fun study.

By watching where traders' eyes move across price charts, researchers Huseyin Gulen and Chan Lim revealed the psychology that makes technical analysis tick.

If you want unbiased news thats centered and not politics focused —> I read 1440 media

Lets dig in…

When We Look at Charts, What Do We Really See?

Ever stare at a price chart and wonder what your brain is actually processing? We all do it - scanning those candlesticks and getting lost in the ether.

Here’s the thing: what we focus on might be more revealing than we think. Thanks to some clever research using eye-tracking technology, we’re getting a peek into how our visual patterns shape our trading decisions.

The Science Behind the Charts

Huseyin Gulen and Chan Lim recruited 175 Purdue University students for an intriguing experiment. Each participant looked at 40 anonymous stock price charts, spanning 18 months each, and made predictions about future returns. But the researchers weren’t just interested in the predictions - they tracked exactly where people’s eyes lingered on those charts.

What they found challenges the old “efficient market” story. You know the one - that academic favorite claiming past prices can’t predict future movements?

Well, real-world behavior tells a different tale. Most of us involved in the marekts day to day probably already know that

The Maps of Our Market Mind

Using heat maps and scope maps, the researchers created fascinating visualizations of attention patterns. Think of heat maps as highlighting the “hot spots” where eyes linger longest. Scope maps work in reverse - the more someone looks at an area, the clearer it becomes, showing us exactly what information makes it into our decision-making process.

Three Key Discoveries

1. The Power of Price Levels
   
   Absolute price levels influence predictions more than price movements do. This explains those volume spikes we see around round numbers and why prices often struggle to break through certain levels. Our brains just love those easy reference points.
   

2. Two Main Types of Chart Readers
   
   Some traders zoom in on recent data points, leading them toward momentum-based strategies. Others take in the whole picture, typically ending up more contrarian in their approach. Neither is wrong - they’re just different ways our brains process visual information.
   

3. The Attention Magnets
   
   Turning points, local highs, and lows grab most of our attention. Those quiet periods of sideways movement? They might as well be invisible. This natural focus on extremes helps explain why concepts like support and resistance levels work so well in practice.
   

The Market Psychology Loop

When most traders focus on the same price levels (like those 52-week highs and lows), something interesting happens. Volume concentrates around these points, making them even more significant. Break through one of these levels, and boom - prices often moves to the next attention-grabbing threshold. I personally love using volume profile for this very exact reason.

Closing Thought

Folks might smile at that tongue-in-cheek comment about efficient markets and useless charts. But isn't it fascinating? While academics debate whether technical analysis should work, eye-tracking technology shows us why it does. Our collective visual habits create the very patterns we trade on.

The next time you're analyzing a chart, try something different. Notice where your eyes naturally drift. Are you drawn to recent price moves, or do you take in the bigger picture? Do round numbers catch your attention? Understanding your own visual biases might just give you an edge in spotting opportunities others miss.

If you’d like to review the paper yourself check Huseyin Gulen and Chan Lim research right here.

Stay curious 🙂 

- John


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Note: This article explores academic research findings and is for educational and entertainment purposes only. Nothing in this piece constitutes personalized financial advice. Always conduct your own research and consult qualified professionals for investment decisions.