- Percentage is defined as "A proportion multiplied by
100".
-
- It is interesting how a percentage of a stock moving down is different
than the same percentage of the same stock then moving up.
-
- For example suppose you own 100 shares of IBM at the price
of 80/share.
- Suppose that tomorrow it opened at 40/share.
That would be a loss of 50%.
- Now suppose that the day after tomorrow
IBM opened 50% higher. What would the price be?
- It would not be 80/share, but it would
be 60/share.
- To get back to the original 80/share,
it would take 100% (40x100%=40 and 40+40=80).
-
- The big question is who really cares? If a trader decides to change
from dollar and cents movements to percentage gains and losses,
he or she should know this basic fact. Knowing this is important
for all traders in case you get into a discussion with another
trader. No one wants to feel like a dummy.
-
- Let's look at the indexes. Suppose the Dow is at 10,000 and
loses 20% which would put it at 8,000. What percentage will the
Dow have to move to get back to 10,000?
- Divide 8,000 by 10,000 and the result
is .25 or 25%. If the Dow moves up the 20% it lost, it would
only be at 9600. It takes an additional 5% move up to reach 10,000
again.
- If we look at the NASDAQ composite index
at its high of 5132 and measure its drop on a percentage basis
to 1291 (9-13-02) the result is a percentage loss of about 75%.
- It will take almost a 400% increase to
get back to its high of 5132. Amazing!
-
- So, from a percentage
basis if, for example, you
are watching CNBC and yesterday the Dow lost 5% and today it
gained 5% it will be lower today than it was at the close, the
day before yesterday.
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