What's a Move?

Investors

So, you're an investor? Great. What does this stock price movement mean to you?

FICT Stock

The answer is straightforward enough: the stock moved 2% up, and you made $2.

Traders

If you are a trader, it is nice to know that a stock can move 2%; but that doesn't always tell the full story. Here's more of the story of what happened Thursday into Friday.

FICT Stock

As we can see, for an investor, FICT may be a stock that can move 2% in a day. But for a trader, Friday saw an 11 point move in the stock from bottom to top.

The True Range

What investors consider "noise" in a stock price is therefore what traders consider opportunity.

Consider this real-life example from September / October 2021.

The AMZN chart is from Friday, September 17th - Friday, October 15th.

From the investor perspective, AMZN moved 53 points in 4 weeks. Yet the trader had multiple 24-hour periods with 100 point moves to exploit!

Calculations

So, does it move?

To find out, we take a simple measurement of a stock's low-to-high price range.

The 1-Day Move

For the one-day look back, we use the previous day's closing price and the low-high for the day. The gap between the lowest and highest of those numbers is the stock's True Range.

The True Range for the stock on Thursday is $10 and on Friday is $11. Note how Thursday's True Range considers the gap-up from Wednesday's close at $93 to Thursday's actual low at $95.

So the Thursday 1-day look back calculation (ie after the Thursday close), is taking the min-max of the following data points:

• Wednesday Close
• Thursday low
• Thursday high

The 2-Day Move

Likewise, the two-day look back considers any possible gap up/down from the previous close.

So the Thursday 2-day look back calculation is taking the min-max of the following data points:

• Tuesday Close
• Wednesday low
• Wednesday high
• Thursday low
• Thursday high