Modeling Stock Prices with Support and Resistance Effects

Summary

The document asks how to simulate stock prices that include support and resistance effects, beyond a basic Brownian motion model. It does not present a proposed simulation method or calibrated model; instead, it describes the author’s search for research on nonrandom patterns in stock prices and points to Lo and MacKinlay’s test of the random-walk hypothesis as a possible starting point.

Its value is primarily as a research question and a pointer to related literature. No simulation, empirical results, or comparison of alternative approaches is provided. The cited work concerns evidence against random walks, but the document does not explain whether or how its findings can be translated into a model of support and resistance. Readers would need additional sources to choose a process, estimate parameters, and validate a simulation.

Key ideas

• The author seeks a stock-price simulation that captures support and resistance effects.
• A basic Brownian motion model is raised as a starting point but is considered insufficient for the desired features.
• The document points to research testing whether stock prices follow random walks.
• It does not specify or evaluate a support-and-resistance model.

Tags

# How to simulate stock price with support and resistance level


# How to simulate stock price with support and resistance level












I couldn't find good resources on how to simulate a stock price data sequence including some basic effects. The basis might be a Brownian motion model; but in real stock prices, there are additional effects like support and resistances etc.

I found the book by Paul Glassermann 'Monte Carlo Methods in financial engineering'. But it couldn't find e.g. something about resistance in it.

Edit: The work by Lo and MacKinlay made me belive that there could be some work on modelling the non-random effects apparently present in stock data: Lo, Andrew W., and A. Craig MacKinlay. "Stock market prices do not follow random walks: Evidence from a simple specification test." Review of financial studies 1.1 (1988): 41-66.

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