Choosing the best tools for stock market forecast and analysis can be one of the most important steps in determining whether an investor will be profitable or miss big profit opportunities. Choosing tools for stock forecasting used to be relatively simple because so few were available. Today, investors are overwhelmed with the many analysis tools for understanding stock market trends and individual stock behavior.
Forecasting tools can be divided into short term, medium term, and long term trend analysis. Short term means anything from a few seconds or minutes to several days. Medium-term is from usually a few weeks to 3 to 6 months. Long term analysis covers from six months and beyond. Though some tools can be used for any time frame, often there is a specific timeframe that makes them more reliable.
Tool #1 – Short term moving average vs long term moving average charts give one of the best forms of trend change confirmation of any analytical tool. 50 day exponential moving average (EMA) vs 200 (EMA) day is a popular stock market forecast tool for determining short term trend changes compared with long term trends.
Tool # 2 – Bollinger bands help define whether a market or particular investment has moved well outside of its trend channel and could be ripe for either a breakout or a failure of the new trend. There are other forms of trend channel analytical tools that use stochastics for determining the normal boundaries of movement for particular investment over time. Any one of these types of tools can help an investor to determine whether market has exceeded its momentum in a certain direction.
Tool #1 - Charting the long-term price-to-earnings ratio versus the current price to earnings ratio will generally forecast if a stock market is overvalued and ready to trend down or undervalued and ready to trend up.
Tool #2 – Volume of a market can determine trends. Markets generally rise on increasing volume and then fall on decreasing volume. There are periods of rapid downfall with waterfall selling, but these end quickly. The more market participants being within the stock market, the more the market will tend to rise.
Applying these tools for stock market forecast and analysis will benefit any investor over the long term.