Predicting Stock Market Using Cycle Analysis and Synthesis

Stock market cycles may help to maximize ROI. One of the 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 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 a performance curve 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 market, 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 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.

Software makes possible using cycle analysis for stock price prediction. To discover different patterns in the price movement, including cycles, investors use different software tools. They are able to extract basic cycles of the stock market (indexes, sectors, or well-traded shares). To build an extrapolation (i.e., forecast), normally they use 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. Also the best software tools should include back-testing feature.

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.

Predicting Stock Market Using Expert Methods

The more methods and information are taken into consideration, the more precise an investment-related solution and, consequently, the more profitable is investing. One of the forecasting methods that uses a collective wisdom is an expert method. This method can be explained by following. As example, an experimentalist shows a pen and asks about 40 people to write down their estimate of the length. Then he collects notes and calculates the average number - normally it is almost 100% accurate. Why it works? Everyone makes errors in different directions so that averaging gives a precise result.

An example of simplified expert method forecast in stock forecasting can be analysts' opinions that collected and averaged. Such information can be found, for instance, on Yahoo Finance webpage "Analyst Opinion" for each stock, it is called "Recommendation Summary". If mean recommendation is equal or close to 1, experts predict strong performance because "1" means "strong buy". If mean recommendation is equal or close to 5, experts predict stock decline because "5" means "sell". It is natural to assume that the more experts express their opinions, the better should be the result of prediction.


Another example of expert forecast could be using your own research of different factors that can contribute certain "opinions" in composed forecast. You can assign different weight for each factor and build an estimation based on weighted averaging. For instance, fundamental analysis may be one the most influential factors, then news factor, technical analysis prediction factor, seasonal price fluctuation factor, etc. All these factors should be added with different weight coefficients. Then the result should be divided by total amount of all weights.

One more idea is to read different current news, analytical articles, blogs, investor forums and draw a summarized conclusion from all opinions, positive and negative predictions. To make this process more automatic, it can be possible to participate on-line polls. There are some websites where you can participate in building a collective forecast for S&P-500 index. You can share your opinion by voting and see the result of composite forecast. If you use more than one method, approach, or tool for prediction, it could be reasonable to give a vote for each one. All participants may benefit from building a simple average forecast. However, do not put too much trust in any method alone - make your own conclusion.

Learn to Predict Stock Markets

Imagine being able to predict the stock market. Your investment would increase in value every day, yield enormous profit and becoming a millionaire would be a matter of time! Just a few investing decisions, all done while sitting in your comfy chair at home and you can join the riches with your superb forecasting abilities! Read on to discover the secret behind this.

If something sounds too good to be true it probably is. Unfortunately, there are substantial amount of investors who are really looking for this secret and spending enormous amounts of money on all kinds of products and services that promise them to become the next Warren Buffet. This article will explain why it is impossible to predict stock markets.

Now when I say it is impossible to predict stock markets I don't mean that it is impossible to make a wise investment which has a high probability of delivering profit. The former is unrealistic and unachievable while the latter could be attained by different methods such as educating yourself about investing/stock markets or finding a good mentor who is a highly skilled investor.

The reason why it is not possible to predict the stock market 100% accurately is because there are too many variables which have the potential to influence the value of a particular stock. Taking all these variables into account would be an impossible task for anyone. Below are a few common factors that influence stock markets:

(Factors that usually influence the whole market)

- Changes in the national economy such as GDP growth

- Unemployment predictions, interest rate and inflation

- Changes in tax rules

(Factors that usually influence a specific stock)

-  Borrowing costs of a company that change as a result of changes to the credit rating

- Threat of new and possible better competitors in the market

- Existing business processes or products becoming outdated caused by technological improvements

There are many factors that influence stock markets. It is impossible to keep an eye on all of them and therefore impossible to make perfect predictions.  On top of that, it is unfeasible to be aware of some of these factors since only a limited amount of people may be aware of them. Being able to predict stock markets faultlessly is not possible and therefore you should never buy goods/services that promise you the opposed. Every investment has a certain amount of risk.