Stock Price Pattern Generator (Random Walk with Drift)

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.

Mean of Random Component:
Standard Deviation of Random Component:
Trend:
First Stock Price ($):
Number Prices (maximum is 10000):
Random Number Seed:

No $ in First Stock Price field.

Update Reset

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

Where:

• Price is the new price.
• Trend is a positive or negative number or zero. 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.
• 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 sequence of random components. To generate another unique sequence of random components, enter a different seed. Enter a positive integer number.