Market forecasting is done in an attempt to predict which way the market will move, thereby increasing the chance of making a profit. There is no foolproof method in the stock market today that guarantees any investor trading stocks a profit. Through different techniques like Fundamental Analysts, Technical analysis, and Technological methods, analysts are able to come closer to forecasting movements, which increases the chances for investors to make a profit. When a broker recommends a stock tip, or provides a number of stock picks for your portfolio, it may be because they have forecasted in what direction they will move.
Fundamental analysis is one method that is used for market forecasting. It looks at the health of a company by analyzing its management team, financial statements, market sector, and competitors. A good management team is important to lead the company to profitability and long term success. They look at the past history of management and educational backgrounds to determine how they will perform. Financial statements are important, and information such as dividends paid, operating cash flow, new equity issues and capital financing will help determine the health of a company’s finances.
Another method that technical analysts use is technical analysis. This method looks primarily on past data of volume and price, and tries to forecast the direction. Using trends, the analyst looks for patterns that indicate in which direction it may move. Some tools used in this kind of market forecasting include the use of chart analysis. Stock charts with candlestick patterns are widely used and are considered the more superior tool for identifying trends. When you are stock picking and need to know which direction or where a stock may change its direction, candlestick patterns are very effective.
With the increase in technology and sophistication in computers and software, there is now the possibility of market forecasting through Technological methods. The main technique uses Artificial Neural Networks (ANNs). They are designed to work by recognizing and learning complex patterns in data. When the correct data is programmed in to it, the software can predict, in most cases better than human analysts. Because of its complex mathematical nature, the system is not widely available. However, there are some user friendly ANNs that some traders are able to take advantage of while trading on the stock market.