What is a Velocity Rating and how is it calculated?
The Velocity Rating indicates the speed with which a stock is capable of moving either up or down. This index of volatility is developed from the price movement of a stock within a specific time period, and is recomputed at regular intervals. In theory, the Velocity Rating has a range of 0 to infinity; however, past experience has shown that this index normally ranges between 10 and 20. A high Velocity Rating does not necessarily mean that the stock will keep moving, but it does reflect its ability to move. The Velocity Rating, taken into consideration with the more important Power Rating (discussed earlier), often proves to be the determining factor in the matter of individual stock selection. For example, of two stocks reflecting equal strength, the stock with the higher Velocity Rating would usually deserve greater consideration.