At Spectral Advisory, future price movements are forecast using historical price data.
The background of the forecasts is based on the theory of behavioral finance with its two main propositions that
1.- Prices either follow trends
2.- or they revert to the mean in extreme conditions.
Using traditional time series analysis and channel techniques trends are identified and, with the help of linear regressions, extrapolated to the future. Extreme price swings are detected using one and two sigma envelopes. The crossing of the two envelopes gives a signal of an extreme overbought or oversold situation, which typically leads to a mean reversion in prices. It also helps to evaluate the risk/return ratio of any given price. The volatility measure that is calculated with the channels is used to forecast price targets.
The analysis of historical cycles enables us to forecast the timing of future tops and bottoms. Benoit Mandelbrot’s findings in his chaos theory that patterns tend to repeat and that seemingly random price movements have a logic, are also used to make a forecast of future price movements.
With the help of time series analysis trends and cycles are identified, as well as future tops and bottoms. This analysis enables calculations of risk return ratios for any given price. The historical trend and the volatility measures are used to forecast future trends and to evaluate price targets. Timing forecast is based on cycle analysis.