Stock Forecast Methods

Stock Market Trading and Investing

Predicting Stock Market Using Cycle Analysis and Synthesis

Investors could benefit from a fluctuating nature of the stock market. A semi-cyclical nature of the market is a bad surprise for some investors but others know how to take advantage of the cycles. To discover cyclical patterns in the market movement, investors use different software tools.

Stock market cycles may help to maximize ROI.
One of the stock market characters is that it has powerful and pretty consistent cycles. Its performance curve can be considered as a sum of the cyclical functions with different periods and amplitudes. Some cycles known by investors for long, for example, four-year presidential cycle or annual and quarterly fiscal reporting cycles. By identifying the cycles it is possible to anticipate tops and bottoms, as well as, to determine trends. So that the stock market cycles can be a good opportunity to maximize return on investments.

It is hard to identify cycles using a simple chart analysis.
It is not easy to analyze the repetition of typical patterns in stock market performance because often cycles mask themselves; sometimes they overlap to form an abnormal extremum or offset to form a flat period. The presence of multiple cycles of different periods and magnitudes in conjunction with linear and non-linear trends can form a complex pattern of the curve. Evidently, a simple chart analysis has a certain limit in identifying cycles parameters and using them for predicting. Therefore, a mathematical statistical model implemented in a computer program could be a solution.

Be aware: no predictive model guarantees 100% precision.
Unfortunately, any predictive model has own limit. The major obstacle in using cycle analysis for the stock market prediction is a cycle instability. Due to a probabilistic nature of the stock market cycles, the cycles sometimes repeat, sometimes not. In order to avoid excessive confidence and, therefore, losses it is important to remember about a semi-cyclical nature of the stock market. In other words, the prediction based on cycle analysis, as well as, any other technique cannot guarantee 100% accuracy of prediction.

Back-testing helps to improve prediction accuracy.
One of the techniques to improve a prediction accuracy is back-testing. It is the process of testing prediction on prior time periods. At the beginning, instead of calculating the prediction for the time period forward, we could simulate the forecast on relevant past data in order to estimate the accuracy of prediction with certain parameters. Then the optimization of these parameters could help to reach a better precision in forecast.

Stock Market Predictor SMAP-3 is a computer program that is based on cycle analysis.
To discover different patterns in the market movement, including cycles, investors use different software tools. One of the them is Stock Market Predictor SMAP-3. It is able to extract basic cycles of the stock market (indexes, sectors, or well-traded shares). To build an extrapolation, SMAP-3 uses the following two-step approach: (1) applying spectral (time series) analysis to decompose the curve into basic functions, (2) composing these functions beyond the historical data.

Predicting Stock Market Using Cycle Analysis

Conclusion
The stock market is an alive system – around can be joy or fear but its buy-sell pulse always exists. To discover different patterns in the market movement, including cycles, investors use different software tools. Sometimes, these computer tools are called “stock market software.” The stock market software tools help investors and traders to research, analyze, and predict the stock market.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.

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May 22, 2010 Posted by | Stock Market Forecast, Stock Market Software | , , , , , , , , , , , , , , , , , | Leave a comment

The Technical Indicator to Watch Rapid Sell-off

One of the best technical indicators to watch a rapid sell-off is a high-order derivative. In mathematics, the derivative is a measure of how a function changes as its argument (input) changes. In stock investing, the derivative can be used to measure how fast the price of a stock changes for a shortest measured period, for example, in case of EOD, one trading day. The following formula can be used for calculation of the first order derivative:

Δ1 = p2 – p1

where p2 – current day closing price, p1 – previous day closing price

In other words, Δ1 is a speed of changing price. If we apply the same formula to two derivatives – current and previous , we get the second order derivative (or acceleration):

Δ2 = Δ12 – Δ11

where Δ12 – current day first order derivative, Δ11 – previous day first order derivative

We can calculate respectfully the third order derivative Δ3, which can be described as speed of changing acceleration. It can be considered as an indicator of panics in the stock market – the more its absolute value is, the more nervous investors behavior in stock market is.

The chart below shows the result of SP-500 index forecast built by Neural Network (trained by the third order derivative). Forecast horizon is two-week period (May 10-21) after May 6 stock market plunge:

The Technical Indicator to Watch Rapid Sell-off


The charts have been calculated and plotted by Investment Analyzer Inv-An-4.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.

May 8, 2010 Posted by | Stock Market Forecast, Stock Market Software | , , , , , | 1 Comment