How to Predict Future Stock Prices

June 28, 2011

Due to speculative nature of stock prices, it is nearly impossible to predict the future price of stocks. Stock prices are mainly run by investor perception about company’s future performance and expected growth.

As we all know, stock prices are highly fluctuating and keeping a tab on them is indeed a huge challenge.

Be Aware of All News Related to the Markets
As a stock trader, you should be aware of all incoming news about the company whose stocks you wish to buy. From the news, you can predict whether it will have a positive or negative impact on the stock price. In case of a good news for a stock, positions can be made in advance and also on intra-day basis to make good profits. Good stock research is the key to success in this field.

Study the Chart Patterns
Studying stock chart patterns is very important for all interested in stock trading. Some chart patterns are bullish while some others are bearish in nature. In case of a bullish chart formation, positions can be made for a few trading sessions and then profits can be booked. In case of a bearish pattern, exiting the stock immediately before the huge free fall would be the right strategy. Chart patterns help to understand weakness and strength in the stock thus enabling us to predict future price targets.

Observe the Volume Growth Carefully
Generally, it has been observed that there is a substantial volume growth in the stocks of companies before they start their run up. Try to keep a track of the volumes of stocks on a daily basis and calculate the percentage rise or fall in them. Increasing volumes can mean that there is growing trader interest in the stock due to some positive news. However, on the other hand, if a stock is continuously breaking down with heavy volumes, then it is a sign that it is going down to a great extent.

Know the Resistance Points Well
The journey of a stock price in the upward direction is never a free one. It has to overcome several resistances at crucial points to go up considerably. Hence, you should be aware of where exactly a stock can face resistance and how strong it will be. Understanding this needs a lot of experience and ability to study technical charts perfectly. On the down side, you should be aware of where the stock can find good support so that it does not breach those levels and go down than your expectations.

Wait for a Break Out
Traders are generally advised to enter a stock once it breaks key levels on the upside. The break out needs to be with heavy volumes and in a convincing way. Another caution here is that many mid cap and small cap stocks give fake breakouts which can be dangerous traps for small traders. So, have strict trailing stop losses to avoid capital loss.

Keep an Eye on Company's Earnings
A stock needs to be technically as well a fundamentally strong to go up. So, you should be able to predict how the financial results of a company will be to trade the stock. Good results means increased investor confidence and that implies stock price advancement with good volumes. To predict company profits, you should be knowledgeable about income parameters and updates on mergers, stake sells and acquisitions.

Be Aware of the P/E of the Company

Stock traders must be aware of the price to earnings (P/E) of a company. You can consider the idea of trading those stocks which are trading at a lower P/E as compared to their peers in the same sector. However, you should note that this is not the sole criteria for stock prices going up.

By following these instructions, predicting future stock prices would not be a difficult task. So, work smartly for handsome gains and enjoy trading!

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