Stock Price Upside Returns Calculator: Upside Produces Large and Small Gains

The Stock Price Upside Calculator generates a price stream using a random component based on input parameters that you set, finds the maximum price from all of the prices in the stream and then computes the percent return for each price based on the maximum price.

Percent return = ((Maximum Price - Price) / Price) * 100

In general the highest percent returns result from buying at the relatively low prices at the beginning of the upside. As prices near the maximum price of the upside, the percent returns tend to become smaller. This point is important, especially in the days of chat rooms and media hype, where many first-time traders hear about extraordinary gains made with cryptocurrencies and meme stocks. In reality huge gains can be made only a few times during an upside price move. Traders who buy at relatively low prices at the beginning of the price upside are in the position to make large gains particularly if prices increase substantially. But after prices move up from the bottom, many gains are modest to small and some are actually negative in real-world trading.

So only a few traders actually make spectacular gains because they bought at very low prices and sold their shares at very high prices to unsuspecting traders who think prices will continue to rise. This is especially true when prices follow an unsustainable rate of increase to form a price bubble.

Beware of the hype associated with rapidly accelerating prices for financial assets.

Stock Price Upside Returns Calculator
Mean of Random Component:
Standard Deviation of Random Component:
Trend:
First Price: ($):
Number Prices (maximum is 10000):
Random Number Seed:
Do not enter $ in First Price field.

 

The Stock Price Pattern Generator uses the following recursive formula that is a random walk with drift:

Price = Trend + Previous Price + Random Component

Where:

Price is the new price.

Trend is a positive or negative number or zero. In formal mathematical models Trend is called drift. To generate an upside pattern Trend should be a positive number.

Previous Price is the previous price. Enter a positive number for the First 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.

First Price is the first price in the series. Enter any positive number.

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 First Price. Each successive price is generated using the above formula.

The model is sensitive to changes in the five 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.

The model is particularly sensitive to the value of Trend. To generate upside price patterns enter positive values for Trend.

To recreate a price pattern enter the original input variables.

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