Wednesday, August 25, 2010

Stock Waves


Recently I was looking at the graphical relationship between the price movement and a moving average ... for example:

See anything interesting?
For example, when the price moves above the moving average, the graph tends to be concave down.
(When it's below the moving average, it tends to be concave up.)

Suppose the price graph is described by P(t).
Then positive or negative concavity can be measured by the second derivative, d2P/dt2.
That suggests a neato differential equation where the 2nd derivative is proportional to the deviation from the moving average, sorta like so:
d2P/dt2 = -k (P(t) - Po)

where Po is the moving average and we see that the right side is negative when P(t) > Po.

Anyway, I decided to play with that and discovered that I done did it before.
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Once upon a time, long long ago, I played with identifying "waves" in stock charts. I even wrote up a tutorial.

Though it was entertaining (at the time), I didn't think it was gonna make me a jillionnaire.
Good thing that, in spite of fading memory, I remembered that I'd already been down that road.
 

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