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No, Luna is not insane, just a little different because she believes in different things than other people like nargles as well as her dad. Also, she can't see nargles because they don't exist.If you mean thestrals then she can see them because in order of the phoenix, she explains to Harry that they can only be seen by people who seen death because Harry saw Cedric murdered in front of him and Harry was confused why he could see them and not the others.

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