Introduction
Often investors assume that any share prediction ultimately carries elements of chance or fate, yet the future of the market can be forecast successfully. The value of the forecast lies in its accuracy. The accuracy can be measured in both time and price as well as by the probability that the outcome will be as forecast.
Common forecasting methods or techniques include:
i) Physical laws
Physical laws allow for definitive outcomes. Forecasts of this type include natural processes such as sunrise and sunsets, phases of the moon, high and low tides, the melting point of steel, and the freezing point of water. Physical laws are very accurate, although the timing of the results may not be perfect. Events such as sunrises and sunsets may be calculated precisely, but a particular location may vary due to topographical features. For example, living at either the bottom or eastern side of a mountain will result in earlier sunsets. Other examples include how imperfections in a steel bar can change the melting point; or strong winds can advance or delay a particular tidal level by a small amount.
ii) Technical analysis
Technical forecasting employs a variety of techniques such as Elliott Wave theory, Gann analysis and Geometric analysis. One of the characteristics of this type of forecasting is the amazing accuracy that can occasionally be achieved. The lower probability of success requires that the use of such forecasts be tempered with considerable caution.