A normal distribution in statistics denotes a bell shape curve for a set of data. Practically the price of securities do not form an exact normal distribution pattern or a bell shaped curve. A graph plotted for a price data over a period of a particular security many times denotes a slight difference on the left end and the right end of the curves and that portion is mostly slightly higher than expected normally. The effect of this is that normally prices of security which are more than two multiples of the standard deviation away from the average may be slightly more common than the statistical 95.4% which would be expected for a Normal Distribution. On the same lines, prices which are over three multiples of the standard deviation away from the average can be more common than the 99.73% predicted by statistical analysis.

The reason by a particular theory is interpreted as “herd mentality”. It means that whenever a stock price is continuously increasing the trader or investors try to go with the buy trend and run to grab the security as also the shorts tend to cover their position increasing the extremity or sensitivity of the rise. The similar thing happens whenever the stock price is falling with the bulls to minimize their loss tend to give away their positions and shorts tend to further sell the security thus once again adding to the sensitivity or extremity of the security.