You might as well look for the holy grail you'll find that before you find your "prediction" solution
Take a look at come of the charting services out there, even though all Brokerage firms provide this service here are some other sites
www.stocktradingtogo.com/.../
http://www.esignal.com/
http://www.stockcharts.com/
http://www.stockta.com
It simply can't be done.
Some people tried once. Their names were Myron Scholes and Robert Merton. They developed the Black-Scholes formula for determining the value of derivatives, based among other things, volatility.
Black and Scholes were awarded the Nobel prize in 1997.
Then they got involved with LTCM, Long term Capital management, a company that was going to use this great formula and make a lot of money. You can read all about it on Wikipedia.
To make a long story short, LTCM produced high returns until ...they lost $100 BILLION dollars less than five years later.
Indirectly proving that math cannot be used to predict the stock market, when combined with human nature.
No real way to do want you want, but you should take a look at the field of econometrics....it can give you an idea on how to use different formulas with historical data to give you an idea of what can affect the movements of prices, and at the vary least it can help you use variances to measure/gauge the riskiness of any said stock given different variables.
If you are looking at a fast food stock, you can compare its financials, number of locations, market share, projected growth etc compared to similar stocks to get a feel of how the price will move.
Unfortunately stocks are based on speculation, but if you can use the econometric formulas with the right inputs, you can get a good idea about its future performance before masses do.
In summary, it is always best to do your own research, and if you know the fundamentals, you can make a nice profit, not a get rich quick method
Great answer by Joe. Markets are ruled by emotion and complex human interactions that can't be modeled. Trying to do so is a fools game. To be successful you need to drill down to the company level where you can have an advantage. The price you can't control. The price you pay you can.
Companies have a value (or a range that describes their value) and if you have a company that you can successfully identify that value it gives you an advantage. You can use that advantage to buy shares when that company is selling below that value and to sell shares when that company is selling above that value.
Looking at that market forces you to try and integrate thousand of factors that you have no idea how they fit together. The information is not precise enough to allow you to predict anything. You could not obtain all of the data you need and upload it with enough precision in a lifetime assuming you understood how it all fit together and how those relationships would change over time. It is truly trying to predict the future. Nobody has a functioning crystal ball.
Stick to one company at a time and you will increase your odds dramatically.
One last item, beta is a rearward looking measure that has no value in predicting the future. It is a measure of past volatility. The idea that it is a measure of risk is laughable and only works that way in academia.
How does Trading Work? I can say you that take a look at this site ( http://forexsignal.kyma.info ) may be it can help you. It 's one of the best course about trading. It seems like Trading is almost totally based on Macro-economics. It also strikes me that since there are not nearly as many currencies as there are stocks/bonds/derivatives etc etc, there must be a large number of market players in each currency bracket. So logically, currencies must be very liquid true? Also, what is the risk of Currency trading, high or low? When I read the business section every day I notice that the Canadian loonie moves hardly a tenth of a cent on a regular basis (in comparison to the US dollar). So it seems like theres very little room for growth in currencies unless you leverage. On that note, whats the maximum leverage permitted for forex trading. I know in stocks its x2, and in derivatives its x10. Anyway the only way to know how to start a profitable buisness is by following some methods like the one that I suggested.
that is the entire point of the market. Thats like asking the medical world if they could just give your a cure for all cancers real quick. Everyone has a different opinion to what works, and theorys are constantly being disproved, while others gain validity. You could search for Benjamin grahams formulas. I am a big fan of him. You could also look at high speed trading algorithums, but I think those focus on the extremely short term.
There's not, I'm afraid.
Also consider this: If there was a way to accurately predict stock prices, what would happen to stock prices????
There's no way to mathematically quantify the fickleness of human nature which unfortunately for you drives the markets more than anything you could ever learn in all the finance courses put together.
You might look to the options for probability of success, and implied volatility. Also, Fibonnacci gives projections of price moves, but this is a far cry from "predictions." We do not "predict" anything. Projections apply in both directions simultaneously. There are support and resistance levels in both directions, on multiple time frames. When those time frames agree, we get a better "probability," not a prediction. Risk is evident in both directions, not just one.
That's why we always have a backup plan. That's why we use good money management techniques for when we are wrong, which is about 50% of the time. That's why we cut losses short and let winners run, for when we are right, and the bottom line numbers take care of themselves in our favor. We know to do that when probability is in our favor, when a support level holds, or when we trade with the trend, or when different time frames line up.
When we can reduce risk, when we can increase probability, when we become more consistent, we can use leverage. You can reduce risk by not chasing price, by buying on pullbacks or at support, and by using stops, and by hedging positions with options.
Anyone that trades options believes in the validity of the Black/Scholes Model, which includes most professional and individual traders. The fact that Myron Scholes took down LTCM doesn’t prove anything; an isolated incident. And yes, there are many isolated incidents that don’t fit the model. Some of these more extreme incidents are referred to as Black Swan events, or 100-year floods.
In the case of LTCM, it was the irrationality of an imploding Russian bond market. If anything, Scholes proved what happens when you ignore the psychological and emotional aspects of crowd behavior and the markets, not that his mathematical model doesn’t work. It works just fine, and is still working as intended today. It is based on the idea that each new price is random, like a coin flip. When you think you can “predict” something or you think that you know more than the markets or you try to control the markets or tell the markets what to do, then you’re in trouble and outside the realm of mathematics. This was the mistake of Myron Scholes, not his “proof.” Use of high leverage was his mistake, not a proof that the model is wrong. If you operate with borrowed money (leverage), you lack the luxury of waiting until prices correct.
Risk ― say, in a card game ― can be quantified, but financial markets are subject to uncertainty, which is far less precise. We can calculate that the odds of drawing the queen of spades are 1 in 52, because we know that each deck offers 52 choices. But the number of historical possibilities keeps changing.
Yes, markets are random, except when they aren’t. In times of stress, markets aren't so random. In times of stress, the correlations rise. The “experts” understand derivatives, but they obviously didn’t/don’t understand the correlations. People in a panic sell stocks ― all stocks. Lenders who are under pressure tighten credit to all. The Russian default on its debt in 1998 caused world tightening, as did the housing bubble/debt crisis in 2007 (most notably, Bear Stearns and their high leverage). One great fallacy of investing is that we can safely get out of a “liquid” market. Diversifying doesn’t work either when correlations rise. In the case of using derivatives to manage risk, “experts” unknowingly accentuated risk rather than reducing it. Bear Stearns was an unwitting party to a hopelessly complex web of such derivative deals. But it did not disprove the underlying mathematical model.
Those looking for a Holy Grail Indicator that doesn't exist will find that technical analysis is too much work. Instead, you should be concentrating on good trading strategy. There are hundreds, if not thousands of setups and triggers (indicators/trading systems), so pick one. But concentrate fully (the most important part of success-fully) on sound trading strategies. This is the hardest part, because it generally goes against human emotion (and the goofballs here that rate these answers don't seem to have a clue). This is why most traders fail -- think about it -- we all have access to the same 1,000 different trading systems and same data and information. Only a few can overcome the psychological barriers preventing them from being consistent.
Chaos, panic and disorder . . . my work here is done. Ambivalent? Well yes and no.
I need to use math to predict if stocks will go up or down in the future and if they will be good investments.
So far I have graphed 20 years of monthly stock prices, Beta, the percent change in stock, and am looking at volatility. Unfortunately, none of these things are really mathy enough. I know that Beta and volatility and risk go together, but I am having a hard time figuring out how exactly.
