Stocks
Tools for Stock Market Prediction for Daily Traders:
Stock markets world over are attracting new comers daily, due to potential for attractive returns on their investments. Global markets have turned out to be truly interdependent with liberalization of funds flow from surplus markets to potential markets that has already led to fair valuation of stocks world wide. How ever tools for prediction of stock markets are still evolving. There is need for increasing the accuracy of market predictions so that the interest in stock markets is sustained.
Daily prediction accuracies for stocks and stock markets are still like weather forecasts in India a few years back. When the weather man says that it rains heavily, normally it used to never happen. But in the case of stock markets, for those dependent on trading as lively hood, accurate predictions on stock market movement will help them a lot and ensure that they dont suffer hugely due to volatile fluctuations in the market.
I am not going to dwell on Long-Term, Medium Term or Short Term market prediction tools since there is a certain degree of accuracy in those predictions, with the already available tools. Even these predictions hold good only as long as ifs dominate buts but still there is a degree of dependability on these predictions. My area of interest in increasing accuracy levels of stock market prediction on day to day basis. The following factors need to be studied more and more in arriving stock market predictions on daily basis.
1. GLOBAL MARKETS:
In these days of digital revolution, no market is insulated from the impact of happenings in other world markets. It appears as though they rise and fall together though they have little in common. For example with the time lag between world markets, we often come across the impact of US markets on Asian and European markets. This leader ship constantly changes. One day it is the turn of US markets in giving cues to the other markets to zoom, next day it is the Asian markets that give the lead. Another day it is the turn of European markets. Hence according to me due weight age need to be given to the trends in global markets to increase accuracy levels of stock market predictions. So those in the day to day trading business in stocks must carefully monitor the sentiment in the other world markets and estimate the ripple effect of the behavior of other world markets on their own market. The analysts must give due weight age to the Global market trends while giving out stock market calls on daily basis.
2. NEWS STORIES:
It is often observed that the markets react instantly to news stories. Especially on negative news stories the impact is more severe. For example a terrorist attack, a plane hijack, a statement by a world leader that can lead to war or tensions, a sudden fall of elected government, resignation by a big political leader often hit the markets with devastating effect. Hence news stories need to be constantly monitored and the investors need to be updated before the news impacts the markets to enable them to square up their positions and avoid huge losses. Hence due weight age need to be given for increasing accuracy levels in prediction of stock markets. Remember what happened to the Indian stock markets on the day when the NDA government lost power and UPA government took over.
The market simply crashed, though damage control exercise was done. What happened when NDA government fell and UPA government took over India is still fresh in every bodys mind. The immediate reaction of the stock markets is a sudden dampening in sentiment and Crash of the markets. It is another story that during the present UPA government, stock markets touched new highs. The immediate impact especially of negative news stories need to be given due weight-age in arriving at entry levels and exit levels of stock markets and stocks on dynamic basis in day to day trading. I consider that as much as 20% weight age need to be given to the news stories and even more in the case of negative news stories. I will quote another recent example of sudden spurt in oil prices, when suddenly conflict broke between Palestinians in Lebanon and Israel over the capture of two Israeli soldiers. The immediate impact coupled with Irans refusal to give up nuclear program led to as much as 25% rise in Oil prices and impacted many countries severely.
3. COMMODITY PRICES:
Volatility in commodity prices are often seen impacting the stocks in that sector irrespective of the fact that there may not be loss or profit due to fluctuating commodity prices on the stock prices. An increase in Oil prices is often seen to lead to a rally in energy stocks or a fall in Oil prices leading to steep fall in energy prices. Hence due weight age need to be given to commodity prices on sector specific stock.
4. FUND FLOW ACTIONS:
Those in the trading business need to follow carefully for the news about infusion of funds by major players as well as for the with drawl symptoms. Funds often keep it a top secret the timing of their decision to book profits or enter a stock. While giving out the stock calls for daily traders, the analysts must keep a careful watch on Fund actions, and redemption pressures. They must analyze these trends very carefully on dynamic and day to day basis so that the stock calls they give are more accurate. For this they have to monitor block deals very carefully and see who is entering and who is exiting from a particular stock so that their daily calls are more dependable.
1. Stock fundamentals : 25%Macro Economic factors: 15%
2. futures and options: 10%
3. global markets : 20%
4. News Stories :20%
5. Commodity Prices: 10%
It should be understood that some times a news story impact may be as much as 100% on the stock market movement irrespective of the other factors that enable us to increase the stock market prediction accuracies. It will be ideal for the daily trader to square up the positions immediately when a negative news of substance breaks so that even if he gets losses it will be still manageable. Waiting for things to stabilize and anticipating a reversal of the news impact on the market is a highly risky proposition. Perhaps these tools increase accuracy levels of stock market prediction and these tools require serious consideration by researchers.
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