Although there are plenty of websites out there claiming to know how a specific stock will perform, there’s no way to guarantee it. There’s no sure-fire way to do this, all we can do is look at the information and speculate. So how do you predict the performances of a specific stock?
The way to approach this is to focus on two specific prices. The current price of your investment and its future selling price. But regardless of this, investors tend to study past history trying to identify patterns and even avoid certain stocks if the index rose too sharply. This is because they expect a correction in the near future.
On the other hand, there are investors that avoid a stock because its value is currently falling. They avoid it as they expect the value to diminish even further.
A lot of experts advise investors not to stand in the way of market trends. They believe that the stock will keep moving in the current direction. This is rooted heavily in greed and fear that’s explained by behavioral finance.
If a stock is falling, why wouldn’t you move your money to something else?
Research shows that mutual fund inflows correlate positively with market returns. So momentum is generated when more people invest and this makes the stock value rise. This, in turn, can also create a positive feedback loop where more people get encouraged to invest in a specific stock.
As a result, paying attention to momentum can help you predict the performance of a particular stock. But this isn’t the whole story.
If you’re an experienced investor, you’ll probably speculate that the markets will even out. This is because you have seen the ups and downs of financial markets.
Seasoned investors tend to stay away from historically high market priced stocks. However, they tend to be attracted to historically low-priced stocks as its represents an opportunity (to them) to turn a profit.
It’s a variable of the stock price to converge to an average value over time. This is known as a mean reversion.
Buy learning how to predict the performance of a specific stock is even more complicated than this as there are other variables that can also affect its performance. As a result, some experts believe that the only prediction of the stock’s price for tomorrow is today’s price.