Share Market Prediction

Cheatsheet Content

### Introduction to Market Prediction - **Goal:** Forecast future stock prices or market direction. - **Complexity:** Highly non-linear, influenced by many factors (economic, political, company-specific, sentiment). - **No Guarantees:** Predictions are probabilistic, not certain. Past performance is not indicative of future results. ### Technical Analysis (TA) - **Premise:** Historical price and volume data can predict future movements. - **Tools:** Charts, indicators, patterns. - **Key Indicators:** - **Moving Averages (MA):** Smooth price data to identify trends. - Simple Moving Average (SMA): Average of past 'n' periods. - Exponential Moving Average (EMA): Gives more weight to recent prices. - **Crossover Strategy:** Buy when short-term MA crosses above long-term MA (golden cross), Sell when short-term MA crosses below long-term MA (death cross). - **Relative Strength Index (RSI):** Momentum oscillator (0-100). - **Oversold:** Below 30 (potential buy signal). - **Overbought:** Above 70 (potential sell signal). - **Moving Average Convergence Divergence (MACD):** Trend-following momentum indicator. - MACD Line, Signal Line, Histogram. - Buy when MACD crosses above Signal Line, Sell when MACD crosses below Signal Line. - **Bollinger Bands:** Volatility channels around a simple moving average. - Price near upper band: Overbought. - Price near lower band: Oversold. - **Squeeze:** Bands narrow, indicating low volatility, often preceding a breakout. - **Chart Patterns:** - **Trendlines:** Identify support and resistance levels. - **Head and Shoulders:** Reversal pattern (bearish). - **Double Top/Bottom:** Reversal pattern. - **Triangles (Ascending/Descending/Symmetrical):** Continuation or reversal patterns. ### Fundamental Analysis (FA) - **Premise:** Intrinsic value of a company determines its stock price. - **Focus:** Economic, industry, and company-specific factors. - **Key Metrics:** - **Earnings Per Share (EPS):** Net profit / Shares outstanding. - **Price-to-Earnings (P/E) Ratio:** Share price / EPS. - High P/E: Growth expectations or overvalued. - Low P/E: Undervalued or low growth. - **Debt-to-Equity (D/E) Ratio:** Total liabilities / Shareholder equity. - Indicates financial leverage. Lower is generally better. - **Return on Equity (ROE):** Net income / Shareholder equity. - How efficiently a company generates profits from shareholders' investments. - **Dividend Yield:** Annual dividends per share / Share price. - **Qualitative Factors:** - Management quality, brand strength, competitive advantage (moat), industry outlook. ### Quantitative Models & Machine Learning - **Approach:** Use mathematical, statistical, and computational methods. - **Common Techniques:** - **Time Series Models:** - **ARIMA (AutoRegressive Integrated Moving Average):** For forecasting future points in a series based on past points. - **GARCH (Generalized Autoregressive Conditional Heteroskedasticity):** Models volatility. - **Regression Analysis:** Linear, Logistic, etc. to find relationships between variables (e.g., stock price and economic indicators). - **Machine Learning (ML):** - **Supervised Learning:** - **Random Forests, Gradient Boosting Machines (GBM):** For classification (up/down) or regression (price prediction). - **Support Vector Machines (SVM):** For classification. - **Deep Learning:** - **Recurrent Neural Networks (RNN), LSTMs (Long Short-Term Memory):** Excellent for sequential data like time series. - **Convolutional Neural Networks (CNN):** Can find patterns in price charts (image-like data). - **Challenges:** Data availability, non-stationarity, market efficiency, overfitting. ### Sentiment Analysis - **Premise:** Market sentiment (fear, greed) influences prices. - **Sources:** News articles, social media (Twitter, Reddit), financial forums. - **Techniques:** Natural Language Processing (NLP) to extract sentiment (positive, negative, neutral) from text data. - **Indicators:** - **Fear & Greed Index:** Combines several market indicators to gauge overall sentiment. - **Put/Call Ratio:** High put volume suggests fear; high call volume suggests greed. ### Risk Management - **Essential:** No prediction method is 100% accurate. - **Diversification:** Spread investments across different assets to reduce risk. - **Stop-Loss Orders:** Limit potential losses on a security. - **Position Sizing:** Determine appropriate amount to invest in each trade. - **Emotional Discipline:** Avoid impulsive decisions based on fear or greed.