Custom Search

# Stock Price Pattern Generator - Random Patterns Look Like Real Price Charts

Much has been written about the price patterns of securities - are they defined by predictable processes or are they formed at random? Read about the subject at Random Walks in Stock Market Prices and Stock Market Prices Do Not Follow Random Walks.

This article does not discuss this debate, but it offers a model to help think about it.

The Stock Price Pattern Generator computes a series of prices using a random component. The resulting price charts look amazingly like real price charts. The generated charts include familiar patterns such as double tops and bottoms, head and shoulder tops and bottoms, pennants, triangles, bubbles, crashes and more.

 Stock Price Pattern Generator Mean: Standard Deviation: Rho: Trend: Number Prices: Random Number Seed:

The Stock Price Pattern Generator uses the following recursive formula:

Price = Trend + Previous Price + Random Component

Where:

Price is the new price.

Trend is a positive or negative number or zero. A non-zero value causes prices to follow a positive or negative long-term trend. In formal mathematical models Trend is called drift.

Previous Price is the previous price.

Random Component is a normally distributed variable with a specified mean and standard deviation. The Random Component causes the variation in computed prices. For each price the model generates a random component using the Box-Muller transform.

Number Prices is the number of prices to be generated.

Random Number Seed determines the first random component. A given seed will generate a unique but identical sequence of random components. To generate another unique sequence of random components, enter a different seed. Enter a positive integer number.

Computational Notes

The first price of the model is zero. Each successive price is generated using the above formula.

The model is sensitive to changes in the four input variables, so experiment with different values to see different patterns. An easy way to create a new pattern is to change Random Number Seed.

To recreate a price pattern enter the original input variables.

A price pattern chart has no label on the vertical axis because these values are not important. The outcomes are not associated with a particular stock. It's the pattern that is of interest.

Related Calculators

Stock Correlation Calculator
Stock Return Calculator
S&P 500 Return Calculator - Robert Shiller Long-term Stock Data