Relative Price Change And Relative Price
                                    Acceleration For Stocks

In the following we will present ideas that should help to facilitate the
optimization of your stock trading activity. In addition, the relatively new
parameters introduced should assist you in better understanding stock research

In what follows all references to price changes will refer to changes in closing

Daily price change can be compared to velocity. It is a measure of the change
in price during an interval of time. That interval of time is one day: for the daily price change. The ratio of the daily price change to the original price is called the relative price change. A relative price change of 0.01 is equivalent to a 1% price change.

As the reader probably knows well, relative price changes makes it possible to compare price changes in stocks with different (initial) prices. Relative price changes for most stocks and for the major indices are readily available. This
however, is not true for Relative Price Acceleration: a dynamic concept which
will be discussed below.

In connection with his portfolio, every investor must determine his "trading
horizon".  The trading horizon, for purposes of this article, is the length of time,
in the absence of extra - ordinary market developments, between major changes, in the types of securities and the relative weights of those securities, in the investment portfolio of a given investor.

               A Day Trader may hold a position  for just a few hours
               hoping to capitalize on his speculative powers.
               But a trader whose trading horizon is much longer
               may actually finish the fiscal year much stronger.

Now lets talk about price acceleration. In ordinary usage acceleration refers to the rate of change in velocity. We shall refer to price acceleration as the "rate of change in the rate of   (daily) price change". The time interval again will be one day. The ratio of the "change in  the daily price change" to the original price will be called the relative price acceleration. The relative price acceleration (a proprietary conceptualization)  is an indication of the (direction) of the relative
price change trend.

Let RPC and RPA denote relative price change and relative price acceleration respectively. The symbols (+) and ( -) will denote positive and negative values in accordance with conventional practice. The following table will help to explain the significance of these concepts in relationship to each other.

Explanatory Notes
 (+)  (+)
The most recent price change was (+) and the current  price change trend is (+). If  the current price change trend continues then a stock with these characteristcs is in a local bullish run and has already begun it's ascent.
 (+)  (-) The most recent price change was (+) but the current price  change trend is  (-). If the current  price change trend continues then the next price change will be less positive or even negative.
 (-)  (+)  The most recent price change was (-) but the current price change trend is (+).
 If the current price change trend continues then the next price change will be
"less negative" or even positive.
  (-)  (-)  The most recent  price change was (-) and the current price change
trend is (-). A stock with these traits is in a local bear run and has
already begun it's descent.

The data in the Table below, for selected Dow Components, is as of the close of business on 06-02-2006 (7pm CST). The closing price, the Relative Price Change (RPC) and the Relative Price Accelerations (RPA) are expressed as per cents. All of the (relative) rates of change  are averages or appropriate generalizations of averages. The cost of computing instantaneous rates (of change) would be prohibutive.

As of Close of Business for June 2, 2006

IBM 79.52 -1.45 -2.45
MSFT 22.76 -0.26 -1.02
XOM 61.65 0.88 0.56
BA 83.80 0.19 -0.28
GM 26.49 -1.52 -1.41

The CEO' s are in the executive suites.
The PEO's are the people on the office beats.
The CEO's get all the positive press and have all the fun
but the PEO's must clean up any mess and get all of the work done.

More to Follow!!!

Return To Table Of Contents

Return To Home Page