How To Predict Stock Market Movement Correctly

Check out my part 2 of predicting stock market movement here

Yesterday one of my friend ask me this question:

How to predict the stock market movement correctly.

Well, I can't say i'm an expert in this but i got some thought about it so i would like to share on you.

First of all, in short term, stock market like other markets is irrational and full of emotional trade. Hedge Fund Dominate the short term market and try to create different scenario or emotion such as greed, fear and hope. Only way to win is to guest what will hedge fund do. There are very little technical analysis knowledge involved, very little basis knowledge of stock market involved.

Example, on Oct. 28, 2008, S/P 500 and Dow Jump more than 10% without any good news at all. Some call it bargain hunting or technical rebound or short seller covering position but none of that's true simply because those reason won't make stock market jump 10% in 1 day. Only way a stock market anywhere on planet can do that is some fund manager dump money in without looking at it.

Another example: yesterday Dow and S/P 500 jump 7% and again we see the word such as bargain hunting. For me, bargain hunting stop when Dow hike 3-4%. The rest is irrational.

For Long term however, we need something more than guesting to win. Here are what i think from my experience:

50% economic knowledge. Have you wonder why some Analyst can predict market so accurately? Some may say they got lucky. Other even say market is only up or down so it's a 50% chance of getting right. However, to be as accurate as Jim Rogers, Marc Faber or Peter Schiff you certainly need more than luck. They can predict the stock market so accurately because they look at stock market as an entity of whole economic activity. Yes, you can have a rally after a bad economy news but in the long term, everything will unfold and stock market will head towards the place it should go.

40% Technical Analysis Knowledge. Yes, in long term trading, you still need technical analysis knowledge to predicts the movement of stock market to avoid big technical rebound that can't be explained by economic term. Eg. US dollar has rally for few months now and by looking from economic point of view it simply does not make sence. However with technical analysis knowledge, you can easily see how bad US dollar is oversold and how bad other liquid assets are overbought last year so deleveraging process could take months.

10% luck or ability to control emotion. You still need luck since no body knows what bad thing can happen ad yes, long term trading still involve emotion but rather small compare to long term trading.

Here is just my point of view from my experience in stock market. You still need to develop your own winning formula to beat the market. Like i said there are no person that's always win and no person that's always lose but you certainly can do yourself a favor and avoid losing all your money just simply because lack of winning formula.