Abstract:

This  study  focuses  on  modelling  of  short  term  stock  price  movements.  The  aim  is  to  create  an indicator of technical analysis. We work on the assumption that if the stock price grows (decreases) for several consecutive days, the stock price will very likely move in the opposite direction for the following days.  The  buying  signal  is  generated  after  several  days  price  decrease  and  the  selling  signal  is generated after several days growth. We assume  that  the stock price oscillates around  its unknown intrinsic  value.  If  it  deviates  from  this  value,  it  tends  to  be  restored.  Profitability  of  this  indicator  is  checked up on  the stocks of  the company CEZ. We have daily opening and closing prices  in a  ten years time period from the year 2006 to the end of the year 2015. The results show that trading on the basis of this indicator beats the passive strategy Buy and hold. The best results were obtained in the cases when the trading signals were generated after two and three days decrease or growth.