Developing Stock Market Prediction Strategies for Investing

T here’s a great allure to making stock market predictions. After all, the most accurate stock predictor can create considerable profit by using predictions to develop a strategy for trading. Though you’ll never have a crystal ball that tells you exactly how a stock will behave on the market in the future, you can use a few different methods to make a prediction.

Key Takeaways:

  • A stock market prediction attempts to figure out the future value of a stock or another financial instrument traded on an exchange. Accurate predictions can bring in big profits.
  • Investors can use a variety of methods to make predictions about the stock market both for day trading and longer-term investments, including fundamental analysis, technical analysis, and machine learning.
  • Though the ongoing COVID-19 pandemic and upcoming election in the United States have injected a high degree of uncertainty into various markets, many experts have still come out with stock market predictions for the end of 2020 and beyond.

What Is Stock Market Prediction?

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Stock market prediction is when you try to figure out the future value of a company stock or any other financial instrument that’s traded on an exchange. Successfully predicting the future price of a stock could lead to significant profit. You’ll find a variety of methods and technologies, including stock prediction websites, that try to gain future price information for stocks.

Stock Market Prediction Methods

There are three main categories of prediction methodologies. These methods often overlap to offer a stock market prediction:

Fundamental Analysis

Analysts who use this method examine the company that underlies a given stock. Fundamental analysis will evaluate the past performance of a company along with the credibility of a company’s accounts using things such as the P/E ratio or Warren Buffett’s famous market-capitalization-to-GDP ratio. Fundamental analysis seeks to find the true value of a stock, which investors can then use to determine whether a stock is undervalued or not. Fundamental analysis is typically considered a long-term strategy.

Technical Analysis

Chartists who use technical analysis are not concerned with the company’s fundamentals. Instead, these analysts try to determine a stock’s future price based on past price trends. Because technical analysis is typically used in short-term strategies, this type of analysis is more prevalent in Forex and commodities markets where traders look at short-term price movements. Techniques used for technical analysis include:

  • Candlestick patterns.
  • Exponential moving average, or EMA.
  • Momentum and volume indicators.
  • Oscillators.
  • Support and resistance levels.

Machine Learning

More and more, stock market prediction is happening in the technological realm. Examples include analysts using artificial neural networks, or ANNs, and genetic algorithms, or GA.

A number of AI-based platforms exist to try to create stock market predictions. These platforms draw on data research, including:

  • Historical volume.
  • Latest trends.
  • Price movements.

Using this research, stock market price predictors compare data with real-time market performance.

Using Stock Market Predictions for Day Trading

Day trading, which involves buying and selling stock over the short term, is a faster but riskier way to invest than long-term stock market investments that call for investors to diversify and patiently hold on to stock. If you’re interested in day trading, you will need to look at several factors to develop predictions for how the stock market will likely change on a day-to-day basis.

  • Stocks and the economy: As a whole, the stock market rises (and falls) depending on the state of national and global economies. There’s a strong relationship between stocks and the economy — a slow economy is bad news for the companies that each individual stock represents. Companies have fewer customers in a slow economy, and the customers they do have will have less buying power than they would during an economic boom. It’s also harder to raise capital if the economy is poor, and it’s more expensive for a business to borrow money if there are high interest rates.
  • Key indicators: You can use key economic indicators to predict day-to-day changes in the stock market. The monthly jobs report, which gives unemployment figures and shows whether businesses are hiring (and people are finding work), is one example of an indicator you can use. In anticipation, the stock market tends to rise the day before a jobs report that people expect to be strong. The opposite is also usually true, when a rise in job creation that’s lower than expected sends stocks lower. Other factors that affect the stock market on a daily basis include announced changes to:
    • Industry regulation.
    • Interest rates.
    • Tax policy.
  • Trends in investing: Although economic news can influence stock market changes, individual investors make any change in the stock market actually occur. You can also predict upcoming stock market changes by analyzing investor interests and attitudes. Looking at online search metrics can reveal sectors of the economy that investors are investigating. You can use this data to predict stocks that will likely see higher demand, and by extension higher prices, on the next day of trading.

By reading reliable financial news and learning about investor attitudes and changes, then considering this along with changes to the broader economy, you can make predictions to use in day trading. A variety of subscription or free stock prediction services let you look at internet search analytics.

You can put this information together with your knowledge of the stock market overall and specific stocks you’re interested in. It’s also a good idea to record your predictions so you can compare them with actual outcomes as you develop your ability to predict short-term changes that happen each day on the stock market.

Using Stock Market Predictions for Mid-Term and Long-Term Investing

Trading involves a lot of uncertainty, and you’ll need to keep different variables in mind if you use a stock prediction website or any other type of forecasting. Markets can see a high degree of volatility as the world changes and new competitors surface.

However, traditional market types such as the Forex and commodity markets typically have years of previous volatility and trading data available. That means prediction software can take in a considerable amount of market data, including data from the most influential global exchanges, and give investors a valuable perspective to consider when evaluating movements in the market.

A comprehensive investment strategy will not use a stock predictor on its own, even if you think you’re using the best stock prediction website out there. Market fluctuations due to unforeseen circumstances can always render a past prediction designed based on long-term trends useless.

That said, you can use a stock predictor to develop an educated guess about the future of a market while also keeping in mind the latest news and global impacts as well as fundamentals. Particular emphasis on mid- or long-term investment strategies such as buy-and-hold can be particularly effective for beginning investors looking to delve into stock market predictions.

Stock Forecaster: Predictions for the Second Half of 2020 and Beyond

Both COVID-19 and the upcoming United States election count as factors influencing the stock market, sometimes in unpredictable ways. Amidst the ongoing COVID-19 pandemic and the market uncertainty that came as a result, many experts have made predictions for how the stock market will react in the later part of 2020 and into 2021. Predictions have included:

  • While riskier assets experience an overall bullish landscape, near-term dislocations will affect things such as commercial real estate, hotels, and airlines.
  • Global stocks will go higher in 2021 due to a variety of factors, including monetary stimulus.
  • The NASDAQ will beat the Dow Jones Industrial Average. The NASDAQ, which is very tech-heavy, has crushed the Dow, composed of more traditional stocks. The NASDAQ Composite gained 12.1% in the first half of 2020, while the Dow lost 9.6%. With conditions favoring technology stocks (the pandemic pushes people to work from home and shop online, while deterring things like visiting restaurants and traveling), experts think that pattern is set to continue. Many NASDAQ stocks stand to benefit from ongoing conditions of the pandemic, while many Dow stocks are especially vulnerable.

Predictions for Business Recovery

COVID-19 continues to pose a threat to businesses worldwide. However, while businesses and the market overall reflected the dire world circumstances in February through April of 2020, as the year progressed, businesses started to bounce back. Sectors that showed some good signs include:

  • Health care: With an increased focus on needs for drug and vaccine developments, both now and in the future, health care companies are doing well. Delayed procedures and treatments that are taking place again now also play a role.
  • REITs: Real estate investment trusts, or REITs, have delivered a return. Retail remains troubled, but with ample rent collections, REITs make better quality bets.
  • Technology: Technology companies continue to win big. With remote work and stay-at-home practices ongoing, technology stock tends to have higher future value.
  • Utilities: After a low in the stock market in March 2020, primary sectors of stocks went up, with many going up more than the general S&P 500 Index.

You can use stock market predictions to develop strategies for trading, both in terms of day trading and when creating mid- and long-term investment strategies.