The Market Forecasting Significance of Market Movements
A THE SEER studies his crystal, so too thousands of traders study their charts of the price movements of both stocks and commodities. They are the courageous exponents of the philosophy that, "If you want to know what the market is going to do, study the market." It is the purpose of this study to analyze the actions of certain markets in order to determine their inherent forecasting possibilities. To establish the characteristics of market behavior, it is necessary to select moving definite time intervals of market action and to determine the probable actions in the immediate subsequent moving intervals. This statistical analysis yields specific "forecasting" criteria for these specific time intervals, which may be tested comparatively. From these results the criterion for maximum trading profit may be determined and its possibilities appraised. The raw data employed in this study are the daily "highs" of the U. S. Steel Common stock; wheat May futures and cotton October futures. The "highs" were selected arbitrarily rather than the "lows," which would have served equally well. Daily figures were chosen to permit analysis, based on short time intervals, to give the greatest volume of data and to make possible more precise testing of the criteria than would be possible, for instance, by the weekly "highs." The question of what subsequent market action will follow prior market action may be expected to depend upon the lengths of the prior and subsequent intervals. The amplitude of the subsequent market movement may be expected to bear some relation to the amplitude of the prior movement. Thus, this study begins with the selection of prior intervals, subsequent intervals and the statistical determination of the relative market movements. The first of the pertinent intervals for which U. S. Steel stock was analyzed is the 1-1, that is a one-day-prior interval with its subsequent one-day interval. Other intervals are designated as the 2-2, 4-4, 8-8, 16-16, 32-32, 48-32 and 64-32, each pair of figures representing the prior and subsequent intervals in market days. The data selected for the purpose of this study were the daily "highs" of the U. S. Steel Common stock prices from January 1, 1922, to January 1, 1932. This stock was deemed suitable because of its broad and continuous market action throughout this period, during which time it