I have mostly analysed a stock from valuation perspective and I rarely use technical indicators to predict price movements. Here is an attempt to do so with one of the heavy weights at NSE, ITC Corp. I tried to model the with a linear trend and sinusoidal wave (owing to cyclical nature).
The stock behavior has typically two characteristics, the linear trend and the cyclical nature. Further to that, we have noise behavior. The below graph shows how a base model differs when the noise term is added. Basically, noise is nothing but the randomness.
The stock behavior has typically two characteristics, the linear trend and the cyclical nature. Further to that, we have noise behavior. The below graph shows how a base model differs when the noise term is added. Basically, noise is nothing but the randomness.
Coming back to the ITC share price, the model behavior is as follows:
The price can sway around the model prediction (blue line) due to the noise. The model predicts that there is a 2 in 3 chance that the price will go down to 320 and bounce back to 350 in the remaining 2 months.
