VELOCITY AND ACCELERATION

The velocity is a measure of how quickly the market moves from one point to another. The formula for velocity is:

Velocity = d/t

where d = distance moved

          t = time of move

 

In trading, the distance is measured by price, so a market that moved from 100 to 105 in one day would have a velocity of:

          Velocity = 5/1

                      = 5 points/day

Velocity is similar to the momentum calculation. The acceleration is a measure of how quickly the velocity changes.

The formula for acceleration is:

 

Acceleration = v/t

where v = change in velocity

            = time

 

In the previous example, the market moved from 105 to 113 the next day, so the acceleration is:

VeiocitY2 = (113 - 105)/1 = 8

The change in velocity = V2 - VI = 8 - 5 = 3

The acceleration = 3/1 = 3

 

The velocity, acceleration, and volatility calculations are ways of measuring market movement. The velocity and acceleration measurements provide an indication of how fast the market moves. The volatility calculation shows the likelihood of market movement within a certain time or provides a measure of price movement in the past.

In calculus, velocity is the first derivative of distance, or the slope of the line, and acceleration is the second derivative of distance. A derivative is the change of one variable with respect to another variable, so velocity is a measure of the change in distance with respect to time. Acceleration is the change in velocity with respect to time.