Stock Forecast Methods

Stock Market Trading and Investing

The Best Technical Indicators of 2010

Is it possible to find the best technical indicators that are the best for all cases? The best way to find the answer is to collect and analyze data and make a comparative analysis for many years. In fact, statistics shows that depending on different time-frame, market conditions, industry specifics, type of stock or ETF, and other factors, some indicators might be best but other worst, and vice versa. The major conclusion – it is better to select the best indicators for a particular case.

In general, the question can be answered if an average is calculated (although it might be not so helpful). Specifically, concerning average forecasting success based on the statistics during 2010, the five of top winning indicators are:

  1. Relative Strength Index
  2. Money Flow Index
  3. Twiggs Money Flow
  4. On Balance Volume
  5. Directional Movement System

Another problem is that there are not only many technical indicators but also many different interpretations of their signals. Some traders use particular favorite indicators and insist that their interpretations are right. A computer program could decide using back-testing which indicator should be trusted more and another less for particular market conditions and a specific stock. It could compose the forecast with weights accordingly to predictive ability of each technical indicator. The example of such program is Investment Analyzer (10-day forecast using Neural Network).

Advertisements

March 30, 2011 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