Whether you are evaluating stocks as part of technical analysis or wish to gauge a stock's performance over a trade period, knowing the net change formula is essential to your evaluation. Net change is critical to understanding the stock market and is utilized to evaluate various financial securities.
Net Change Definition (Stock Market)
The net change in stock, sometimes referred to as just "change," is most commonly used for financial security when dealing with tradable securities, such as stock prices, bond prices, mutual funds and derivative products. It represents the most common data in financial quotes and is used by all trading platforms and real-time market data providers when quoting prices.
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By definition, the net change is the difference between the closing price for the previous day's trading period and the closing price for the current trading period (typically, the difference between yesterday's price and today's price at closing). Net change can be applied to any length of a trading period for financial assets such as stocks, bonds, exchange-traded funds (ETFs), commodity contracts, mutual funds, futures and options. All financial assets trade in active markets or exchanges, making room for liquidity and price efficiency to represent net change accurately.
It would otherwise be impossible to track net change in stocks without an active market. Net change is expressed as either a positive or negative to indicate the direction of the change. When an asset gains value, the net change is depicted with a plus sign; conversely, when an asset decreases in value, it is expressed with a negative sign. For example, an increase in .25 cents is depicted as "+.25". Net change can also be expressed through percentages, which tends to be a more useful representation because it indicates relative returns that would not be visible through a price change, making comparisons between net changes easier to assess.
Net Change in Technical Analysis
One of the most common applications of net change is in technical analysis, providing crucial information for technical evaluations. Technical analysis is a method used to evaluate and detect trading opportunities and price movements of stock using previous market data.
Technical analysis hinges on the idea that all participant's actions in the stock market, such as buying and selling, reflect all relevant data related to a traded security; therefore, fair market values are continually assigned to securities.
Net change is often represented through line charts, bar charts, open-high-low-close (OHLC) charts, candlestick charts, mountain charts and point-and-figure charts. Technical analysis traders then employ these charts to uncover price trends and volume. They are also used to forecast patterns to reveal future trends and price targets.
The Net Change in Stock Formula
The net change in stock formula is a simple subtraction equation. The net change is determined by taking the current closing price of an asset and subtracting the previous closing price.
For example, suppose a stock closed at $150 on a Monday and closed at $125 the following Tuesday. For the calculation, the previous closing price is $150 and the current closing price is $125. To find the net change, use the following equation: $125 - $150, making the net change -$25.
To determine the net change in percentages, use this equation: [(current closing price - previous closing price)/previous closing price] x 100. Using the example above, the calculation would yield the following: [($125 - $150)/150] x 100 = -16.67 percent. If you have questions about net change and your investments, you should speak with a financial advisor.
Consider also: How to Calculate Net Increase