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A text reads

the stock price rallies by 1.2 % every day on a straight line

What, exactly, does that mean? Does the spot rise with 1.2% every day? If so, 1.2% of what? 1.2% of the previous day's price, or of the initial day 1 price?

Or does the spot move 1.2% every day in a random direction?

  • Can you link to the text? – Nosrac Mar 24 '17 at 18:59
  • Unfortunately no, it's a line in some hand-out notes. – Mahi Mar 24 '17 at 19:01
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    The suggestion is that the stock price increases every day by 1.2%, without any exceptions, so that if you were to plot the daily price movements on a chart, you would get a straight line upwards. In fact you would plot a parabolic line due to the compounding effect on price movements. – user41790 Mar 24 '17 at 19:01
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    Yes, it's the "straight line" part I don't understand. Usually, by "rallies", it means it increases. But how does it increase on a "straight line" if it's 1.2 % every day? If that's 1.2 % of the current spot price, then there's no straight line, it's a convex growth. – Mahi Mar 24 '17 at 19:05
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    Yes, "convex" or parabolic. It is common in financial journalism to describe an asset price that consistently moves in one direction as "moving in a straight line". It is not meant to be taken literally, rather to suggest consistent movement. – user41790 Mar 24 '17 at 19:09
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What, exactly, does that mean?

"Rallies" implies that it is increasing every day. Increasing by 1.2% of the first day's price would imply that the total price is increasing on a straight line. Increasing by 1.2% of the previous day's price would imply that the daily percent change is a straight, level line. It's impossible to know which the source is describing, but it is typical to talk about percent change on a daily basis.

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    Could you expand on the following: "the daily percent change is increasing on a straight line". The daily percent change is 1.2 % - always. So how is it increasing? – Mahi Mar 24 '17 at 19:09
  • @Mahi I was envisioning a chart of percent change vs time which changed linearly. Not sure I put that into words though – Nosrac Mar 24 '17 at 19:23
  • If you plot price against time, and the stock price increases by 1.2% of the previous day's price, the result is not a straight line. It will be an exponential curve (although a very flat one). – DJClayworth Mar 24 '17 at 21:51
  • @DJClayworth Yes, you could plot total price as a curve or percent change as a straight line – Nosrac Mar 24 '17 at 21:58
  • @DJClayworth semilog graph paper is my friend. – JTP - Apologise to Monica Apr 23 '17 at 23:24

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