Forecasting Techniques & Technical Analysis

Forecasting

Forecasting is used for identifing a variety of business - trends, planning management activities. Such information makes it possible to take better decisions and create better plans.

Forecasting is required for all companies, regardless of size or development. Also, all departments within an organization, be it marketing, sales, manufacturing, HR or finance.

Product sales and production forecasts are dependent on the development cycle and it's phase. When developing new product, it's impossible to use time series data, as it won't be accurate or it simply does not exist.

In this paper we will look at Time Series Analysis and it's components. we will also use forecasting techniques with real data from stocks markets, on example of companies like Google and Apple.

Time series analysis

There can be Two types of Forecasting data:

 cross-sectional: analyze several variables for a single period of time (Some of the company's sales for the month of January)

 time series data: analyze a single variable over multiple periods of time (The company's monthly sales for one year in 2010).

There are several components for Time Series Data:

1) Trend, is a component which represents the existing rises or falls. to remove trend line, "use least squares method

possible best-fit line styles:

straight Line: Y = a + b(t)

exponential Line: Y = abt

quadratic Line: Y = a + b(t) + c(t)2

choose one with best R2." (Paul Keat, Philip K Young, Prentice Hall, 2009, Chapter Five, p.44)

2) Cycle, is a component which represents more than one year Variation around a trend. It is possible to isolate cycle by smoothing with a moving average.

3) Seasonality, is a component which takes place periodically: monthly, quarterly or weekly. (Repeats itself from time to time). It is possible to "remove seasonal factors, using moving averages to isolate those factors. remove seasonality by dividing data by seasonal factor." (Paul Keat, Philip K Young, Prentice Hall, 2009, Chapter Five, p.43)

4) Noise component includes random fluctuation. It cannot be explained by above 3 components. Random factors cannot be predicted and should be ignored.

Time Series are typically additive or multiplicative:

Additive Decomposition

In some time series, the amplitude of both the seasonal and irregular variations do not change as the level of the trend rises or falls. In such cases, an additive model is appropriate.

In the additive model, the observed time series (Ot) is considered to be the sum of three independent components: the seasonal St, the trend Tt and the irregular It.

That is

Each of the three components has the same units as the original series. The seasonally adjusted series is obtained by estimating and removing the seasonal effects from the original time series.

Multiplicative Decomposition

In many time series, the amplitude of both the seasonal and irregular variations increase as the level of the trend rises. In this situation, a multiplicative model is usually appropriate.

In the multiplicative model, the original time series is expressed as the product of trend, seasonal and irregular components.

or

The seasonally adjusted data then becomes:

Stock Exchanges

There are many stock exchanges around the world, they should be singled out, such a market, such as NYSE, LSE, TOKYO and NASDAQ (electronic exchange). All companies can not simply withdraw their shares in such exchanges, so he has to meet certain conditions, the Company shall comply with the standards imposed on the exchange, must have an independent audit of the other. Therefore, a new and unknown companies own shares were initially placed in the local market.

NYSE (New-York Stock Exchange) is one of the most popular exchange where the world's most famous and powerful companies' shares, for example: BP, Home Depot, Google, Microsoft.

New-York Stock Exchange represents American symbol of financial strength. It was established on 17 May 1792, when 24 - New York broker, who worked in various financial instruments and transactions inverted, like their counterparts in London, signed an agreement which created Buttonwood Agreement agreement.

In 1975 NYSE became nonprofit corporation, with members consisting of 1366 persons. Cost of one trading place on NYSE today is up to 3 million dollars. 3000 company shares are quoting on NYSE. In 2007 the total stock value amounted to 26.5 billion dollars.

Until 2007 transactions had to be made from Wall Street 11's building on trading floor. But they understood that it was necessary to introduce new technologies in order to facilitate trade transactions. They followed electronic exchanges like NASDAQ, and in January 24, 2007 hybrid market was created, which allows transactions to be held online as well as on trading floor.

LSE (London Stock Exchange) is Europe's most famous and common stock. Registered companies are: Lloyds, Vodafone, Marks & Spencer. London Stock Exchange was officially registered in 1801, but he actually started functioning in 1570, when the Royal financial agent and adviser Thomas Gresham , built the Royal Exchange, at its own expense.

LSE - the market is divided into two groups: primary and secondary markets. The main market is permitted only for stocks of companies which meet specific requirements, while other requirements are more loyal. The shares of Bank of Georgia are currently for sale in the LSE - the secondary market.

NASDAQ (National Association of Securities Dealers Automated Quotation) is the largest electronic stock market in the U.S. There is a core of high-technology companies' shares. There are other stock exchanges, it is easier to compare. It contains a 3700 - to companies and corporations. Most of these transactions on the exchange is carried out in relation to other exchanges.