V.9:1 (23-26): Pseudo Stocks by Mark Harris

Pseudo Stocks by Mark Harris

The stocks charted in Figure 1 look for all the world like typical charts you might find in a chartbook. I have added a few uptrend and downtrend lines and shown how 52 (in the upper chart) seems to provide long-term resistance, then support, and in the latter stages resistance again. I can't tell you what stocks these are, because they aren't charts of real stocks: the charts were generated by my computer along with thousands of others. They are shown as a family here because they all possess common statistical characteristics.

Some years ago I became interested in modeling stock charts using stochastic methods„ that is, using random numbers to drive the simulation.

I started off looking at random walks by letting p be today's closing price and getting tomorrow's price from p + a x R, where R is a random number between -0.5 and +0.5 and a is a scaling factor. This produces squiggly lines, but compared with a real plot of closing prices, the charts are neither aesthetically pleasing nor do they produce the urge to dive in and apply technical analysis. what, in other words, should the squiggles look like to approximate a real stock chart?

Here, naturally, we are far from scientific bedrock and getting into the realm of art. If a successful simulation produces a chart that looks to me as if it came out of Daily Charts, it's not far from my proclaiming, "I don't know much about art, but I know what kind of pictures I like to look at."