Predicting stock price movements is not, and will never be, an exact science. Many theories and methods exist for determining stock fluctuation, but none of these are a substitute for real market experience. The range of methods for determining stock price movement go from the simple and obvious to the highly technical. All have their devotees. It is a good idea to never rely on just one method, but experiment with many.
Keep up with the latest stock news as well as the financial papers. This seems obvious, but one of the clearest and simplest means of determining stock price movement is to see what news items will have an impact on the market as a whole, a sector of the market, or even a single firm. If the Federal Reserve begins reporting on a coming inflationary period, many traders will leave the market and place their cash in bonds. This will lower the volume of the market and depress, at least for a time, the price of many stocks. News of an impending lawsuit against a firm is often a strong indicator for traders to either drop that stock, or buy options on it, so as to cash in on the brisk trading that is probably coming.
Calculate the stocks pivot point. This is a simple, yet effective, method for determining stock fluctuation. Calculating a pivot point is easy: it is an average of the high, middle and low trading values for the stock on a given day of trading. Finding the resistance, or high, level of a stock's likeliest upward movement is figured by taking the pivot point, multiplying my two, and then subtracting the lowest price of the stock for that day. The support, or low, price for the stock can be calculated by doing the same for the resistance, except subtract by the highest price of the day. This method will give you the most likely interval of stock movement at any given time by giving the most likely high and low points for a specific stock. In other words, it gives the average variation of a given stock for any given day.
Use volume to predict stock movement. “Volume” is the number of trades in the market per day. Here, the basic rule is that changes in volume normally come before shifts in price. Volume can become the most important variable in determining price changes. Generally speaking, if volume is increasing, then the price of the stock you are watching is increasing too. This trend will normally continue in the short term. If the volume of the market and the price of the stock are moving in different directions, this suggests a lack of equilibrium, and will soon reverse itself. Keep in mind that if the price of your stock remains the same as volume is increasing, this is a very good sign. It strongly suggests that demand is outstripping supply, and hence, soon, your stock's price will rise.
Most methods of determining stock movement are short term. This is because shocks to the system cannot be determined very far in advance. There are so many political and economic variables that affect the market, long term predictions are normally insignificant. There are too many assumptions involved.
- Compare Broker: Determining The Path Of A Stock
- Money Show; Using Volume To Predict Price Movement; Tim Bourquin; November 2007
- Vanguard. "Understanding ETF Liquidity and Trading," Page 1. Accessed April 22, 2020.
- SEC. "Ask Price." Accessed April 22, 2020.
- SEC. "Bid Price." Accessed April 22, 2020.
- Vanguard. "Understanding ETF Liquidity and Trading," Pages 1-3. Accessed April 22, 2020.
- Charles Schwab. "Trading Volume as a Market Indicator." Accessed April 22, 2020.
- Corporate Finance Institute. "What Is Volume?" Accessed April 22, 2020.
- Most methods of determining stock movement are short term. This is because shocks to the system cannot be determined very far in advance. There are so many political and economic variables that affect the market, long term predictions are normally insignificant. There are too many assumptions involved.
Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."