A derivative is a term used in calculus to show how a function changes as the function's input changes. The derivative formula can be applied to show a financial analyst how stocks are performing on the stock market today compared with years ago. A financial analyst can also use derivatives to predict where stocks are headed. While calculating a derivative formula is a complicated process, if you already have the formula, using it involves little more than a good calculator.
1. Type the formula into the graphing calculator. While there are many graphing calculators on the market, most will have a "Y=" button where you can enter the formula.
2. Press the "Graph" button or key.
3. Analyze the graph. For example, a stock on a parabolic trajectory up or down will have a linear first derivative. In other words, the graph will resemble a line. A positive first derivative generally indicates that prices are moving up, while a negative first derivative indicates that prices are moving down.
- If you don't have a graphing calculator, there are many free graphing calculators available online.
- If your graph oscillates erratically, try extending the time period you are analyzing.
- While it's possible to analyze historical data with accuracy, it's impossible to predict with certainty how stocks will perform in the future.
Items you will need
- Derivative formula
- Graphing calculator or computer algebra software
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