Stock prices change regularly. Minor increases or decreases in a stock price could be random, or can reflect wider market considerations instead of the company's performance. But if the stock price quickly reaches an unexpected new level, this may reflect a more significant change in how investors see the company. This change can help you predict further price acceleration. Acceleration bands are threshold values that indicate significant change.
Identify the highest and lowest stock price during a reference period. For example, identify the stock's highest and lowest level during the past 20 days.
Find the average of these values. For example, if the stock reached a high of $591 and a low of $563, add them together and divide the result by 2 to get an average of $577.
Divide the difference between the high and low values by their average. Continuing the example, divide $28 by $577 to get 0.0659.
Multiply this ratio by 2 and add 1. Continuing the example, multiply 0.0659 by 2 and add 1 to get 1.132.
Multiply this factor by the stock's upper and lower values to find the upper and lower acceleration bands. Continuing the example, multiply $591 and $563 by 1.132 to get $669 and $637 as the stock's acceleration bands.
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