Velocity

Rather than define velocity in physics terms, we’ll define it specifically as it relates to what we use it for- defining directional price trends.

Velocity is the rate of change of the position of a price trend. Velocity specifically defines a trends speed and direction of motion.

Velocity can be defined as the slope of the position on a time graph. If a price chart shows one trending gaining 50% and another gaining 25%, they both have velocity (speed and direction), but the upward trend of 50% has greater velocity.

Speed describes only how fast an object is moving. Speed says nothing about direction. (Speed is also volatility).

Velocity describes how fast and in what direction the price trend is moving.

I like high performance cars and motorcycles. If a car is traveling 50 MPH we have specified its speed, but that says nothing about its direction. If we observe the car is moving 50 MPH to the south, we now have defined its direction and its velocity. Velocity is both speed and direction. Relating that to price trends in stocks, bonds, commodities, or currencies, velocity is the speed and direction the price is moving. We could say the price trend is moving up slow, trending down fast, or not trending at all (sideways). How we define the speed, direction, and velocity depends on our time frame and how we define these vectors.

If there is any change in direction and/or speed, then the trend is changing velocity. A change in direction and/or speed is acceleration. Acceleration is the rate the velocity changes over time. A trend can be accelerating (moving faster, speeding up) or decelerating (slowing down, moving slower). For example, a car moving from 0 to 100MPH is accelerating. A car that moves from 0 to 100MPH in 5 seconds is much faster than one that takes 20 seconds to reach 100MPH. On a straight track, it has speed and acceleration, but not velocity. A car traveling a constant 100MPH around the circular track at Bristol Motor Speedway has a constant speed, but not a constant velocity since its direction is changing as it circles around pointing north, south, east, and west. Velocity describes how fast (speed) and in what direction.

Magnitude is how much. We can measure and gauge magnitude by ranking things to determine relative size relative to others.  In measuring price trends, we could say an upward directional price move of 50% is a greater magnitude than an upward directional move of 25%. The magnitude is the size of the rate of change.

You can provably see how velocity, speed, direction, and magnitude are all related and how they can be used to define not only physical objectives, but also directional price trends to understand supply and demand for stocks, bonds, commodities, and currencies.

I have a proprietary algorithm , a complex equation, that I call velocity that I use to determine the speed and direction of trends and their probability of inertia and continuation.

You are encouraged to reference this website, but please source ASYMMETRY® Observations and http://www.asymmetryobservations.com

Copyright 2013. ASYMMETRY® Observations All Rights Reserved.

 

2 responses

  1. Pingback: The role of shorting, firm size, and time on market anomalies « Asymmetry Observations

  2. Pingback: Trajectory and Directional Price Trends « Asymmetry Observations

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