Amplitude

DEFINITION of 'Amplitude'

The amplitude is the difference in price from the midpoint of a trough to the midpoint of a peak of a security, and it is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).

Amplitude can be the amount of retracement in a price and is also the width of a channel in a range-bound market. Chart pattern analysis says that after a retracement, price will continue to move at least a distance equal to the retracement's amplitude.

BREAKING DOWN 'Amplitude'

The amplitude allows for an estimation of the volatility of a particular security. The larger the amplitude, either positive or negative, the more volatile the security is judged to be. The level of volatility can also denote the amount of risk present in a particular investment.

What Constitutes a Peak or Trough

A peak is identified as the highest price point a particular security reached during a specific period of time. With this understanding, the peak can vary depending on the time period under examination. The trough is the inverse of the peak. It represents the point at which the security had the lowest price during the same period of time. When related to a country’s gross domestic product (GDP), the trough represents the lowest point during an economic depression immediately preceding an upward shift towards recovery.

Determining Amplitude as Related to Peaks and Troughs

The amplitude represents the difference between the midpoint of the peak and the midpoint of the trough within a time period. Each midpoint is determined by finding the difference between the extreme, such as the aforementioned peaks or troughs, and the midline. The midline may resides at zero in cases where both positive and negative value are possible. In other cases, the midline may represent the mean price of a security in cases where negative values are not permissible. The amplitude is calculated by subtracting one midpoint from another.

Calculating Amplitude as a Formula

In order to calculate the amplitude, the value of a, the following formulas can be used assuming the value of b is the midpoint of the peak and the value of c is the midpoint of the trough.

For a bullish retracement, the formula, b – c = a, should be used where c precedes b on the x-axis. This will result in a positive amplitude, a, to denote the upward trend.

For a bearish retracement, the formula, c – b = a, should be used where b precedes c on the x-axis. This will result in a negative amplitude, a, to denote the downward trend.

RELATED TERMS
  1. Uptrend

    Describes the price movement of a financial asset when the overall ...
  2. Detrended Price Oscillator (DPO)

    An oscillator that strips out price trends, in an effort to estimate ...
  3. Downtrend

    Describes the price movement of a financial asset when the overall ...
  4. Inverse Head And Shoulders

    A chart pattern used in technical analysis to predict the reversal ...
  5. Peak

    The highest point between the end of an economic expansion and ...
  6. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
Related Articles
  1. Trading

    Dow Theory: Dow Theory Specifics

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comSo far, we have discussed a lot of the ideas behind Dow theory along with its main tenets. In this section, we'll take a ...
  2. Trading

    Using Double Tops And Double Bottoms In Currency Trading

    Find out how to apply the two most common price reversal patterns to your trading.
  3. Markets

    Alphabet Could Break Trading Range After Earnings (GOOGL, GOOG)

    Alphabet's long holding pattern may come to an end on April 21st, when it releases first quarter earnings results.
  4. Markets

    Best US Equity Sector Since Market Peak October 2007

    Find out about the best U.S. equity sectors since market peak in October 2007, how they became the best and what may happen if market conditions change.
  5. Retirement

    11 Social Security Calculators Worth Your Time

    The safest Social Security calculators to use when figuring benefits are on the official website. The best are the ones that access your actual record.
  6. Managing Wealth

    Calculating The Means

    Learn more about the different ways you can calculate your portfolio's average return.
  7. Trading

    Shareholders' Equity

    Learn how to calculate this common formula in finance.
  8. Investing

    Some Leading Indicators Are Signalling a Recession

    Several leading economic indicators have peaked, suggesting that a recession before the years' end is not out of the question, according to Deutsche Bank.
  9. Retirement

    The 3 Best Social Security Calculators For 2016

    Find out how to analyze your Social Security benefits under different retirement scenarios using multifunctional online Social Security calculators.
  10. Trading

    Analyzing Chart Patterns: Round Bottoms

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downtrend ...
RELATED FAQS
  1. What does a double bottom tell a trader about the overall trend?

    Learn how a double bottom pattern forms on a price chart and why many traders consider double bottoms to be a sign of reversal ... Read Answer >>
  2. How do I implement a forex strategy when spotting a Multiple Tops pattern?

    Understand how to use a multiple tops chart pattern to establish a profitable forex trading strategy, including the optimal ... Read Answer >>
  3. What are the key metrics used to measure the business cycle?

    Learn what key metrics are used to determine if the business cycle is in a period of expansion, contraction, or at a peak ... Read Answer >>
  4. How are Triple Bottom patterns interpreted by analysts and traders?

    Learn about the formation and interpretation of the triple bottom pattern, how to identify it on a chart and how to confirm ... Read Answer >>
  5. How do I build a profitable trading strategy when spotting an Multiple Tops pattern?

    Understand the optimal conditions for creating a profitable trade strategy based on the multiple tops pattern, and learn ... Read Answer >>
  6. What stage of the economic cycle is usually the best for an investor to enter the ...

    Learn how savvy investors employ sector rotation to gain from the electronics sector during expansion and avoid losses during ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center