Cycle Analysis – The Key In Predicting Stock Market Movements

Vast majority of the common population see investing in the stock market as some sort of speculation. However, experienced and skilled investors around world understand the pattern; they understand and make use of market cycles to make a fortune. The stock market’s performance curve, a sum of the cyclical functions with different periods and amplitudes can be predicted to a certain extent. There are several cycles known to investors for a long time, cycles like the quarterly fiscal reporting cycles, presidential cycles (4 year terms) and so on. There are several other subtler cycles which can be spotted by proper analysis. If you can spot a trend then it will directly result in huge profits.

Issues with simple chart analysis:

Most cycles mask themselves, so it is not easy to spot a repetition of a typical cycle using a simple chart analysis. When you plot the movement of a stock price in a graph you can notice that cycles might sometime overlap to form an abnormal offset, resulting in a flat period. It is not easy to identify the overall trend because there are multiple cycles extending to different time periods and amplitudes. These variables result in a complex pattern; thereby hiding the overall trend.  So we need a software program that make use of comprehensive statistical models to predict the overall trend.

Importance of Predictive Models:

A good Stock Market Software with a predictive model can go a long way in reducing the uncertainty of the stock market. Hence choosing the right stock market software can increase your overall return on investment. However every predictive model has its own limitations. The reason being, the cycles of the stock market are unstable, so the market prediction is not 100% accurate. We need to give allowance for the probabilistic nature of the market and spread our investments to cut the overall risk. No matter what, any good investor in today’s market needs a good stock market software.

Back-testing to Improve Accuracy:

Back testing is the process of testing a particular prediction on a prior market movement. Instead of predicting the future, back-testing simulates the forecast on old data. This can help us in fine tuning certain parameters and thereby optimize the prediction model to achieve better predictions for the future.

Different stock market software offers different features, but most of them help us in discovering different patterns and cycles. Once these software get the live feeds of the market, they are able to extract all the important information to make the predictions. They then extrapolate using a two step algorithm: apply time series to decompose the curve in to the basic required parameters, and recomposing those functions beyond the old data to predict the future. Some of the top software also have a built in back-testing feature.

Choose the right stock market software to invest wisely and make a fortune.

Good Luck

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