How to Forecast Market Behavior

Can we forecast the future?

Why yes, of course! Any financial market can be analyzed and forecast in some way.

Through the medium of specialized sciences we call technical and fundamental analysis we can assess the probabilities of a market’s direction in the future.

Fundamental Analysis

Fundamental analysis is an analysis of a country’s national qualities (macroeconomics). Fundamental analysis is more pivotal in its power to move the markets with the whims of its daily, weekly, monthly, etc. economical news releases.

Any kind of breaking news, such as some unexpected event of national importance, can break any market prediction that is based on technical analysis alone. We will discuss technical analysis much more in the next section.

The most important macroeconomic indicators are:

1. Factors influencing the market include: Consumer Price Index (CPI), Orders for durable goods, Employment data, Gross National Product (GNP), new house construction, international trade balances, personal income and outlay, Producer Price Index, retail sales, etc.

2. Other important indicators: Beige book, Consumer confidence, Current account, session of the Federal Open Market Committee (FOMC Meeting), Leading Indicators, initial requirements of unemployment benefits (Jobless claims)

3. Reports of heads of the governments, heads of the central banks, outstanding economists concerning a situation in the market 

4. Changing monetary and credit policy

5. Sessions of the big seven - the trading and economic unions

There is no real need to worry about “surprise” results. These macroeconomic indicator reports are published at known times of the year and rarely contain unexpected results.

Here is a typical example for one day:

As you can see, the right hand part of the table (above) consists of three columns: Prior, Forecast and Actual.

"Prior" means that a previously defined index had some value in the past for a defined period of time (week, month, quarter).

"Forecast" means economists and professional traders, based on specific calculations, are waiting for this index value for the week, month or quarter.

"Actual" means the real value of the index is unknown (or, at least, unpublished) so far.

Of course, if you are a beginner, then these aspects can be difficult to understand.

Don’t worry! Help is at hand.

Most brokerages offer a service providing this information to their clients free of charge.