If you turn on the television or surf the internet these days, you’re bound to find any number of news items featuring free yearly predictions about the direction of the stock market, but just how accurate are these predictions? Can the direction of the stock market really be interpreted a year or more in advance? Here we will discuss the methods used by financial experts when creating free yearly predictions about the market, along with some of the pitfalls you should be aware of.

The Stock Market and Free Yearly Predictions

Stock market forecasting is not an exact science. If it were, many people (including yours truly) would be wealthy beyond their wildest dreams. So how do many of the so-called economic experts arrive at their free yearly predictions?

For the most part, the art of stock market technical analysis is based solely on computer data that tracks a stock’s performance over a specific period of time. Also called computer models, this data helps to forecast whether a stock will rise or fall in value over the short or long-term.

Generally speaking, the free yearly predictions you see on many websites today are based on technical analysis. Analysts use this data—data which consists of a particular stock’s past price movements and trading volume—to determine the probability of the market moving in one direction or the other. Technical analysis, while not 100% reliable, can help investors acquire an edge over the long-term, as even a small percentage increase in a stock’s performance can add thousands to an investment or retirement account.

Free Yearly Predictions: The Downside

While technical models have proven fairly reliable over the years, the data does not always lead to the correct conclusions. For example, technical analysis did not predict the huge dip in the market back in 2008, nor did it see the massive drop in investment accounts back in 2000. If the data had foreseen these drops, thousands of people could have got out beforehand and saved a ton of money. One person that did accurately forecast the tremendous drop in 2008 was Oliver. His best stock market option trading return was 121.7 to 1 in less than 4 months in 2008.

Stock market forecasting is inexact and can lead to huge financial losses when this information is taken as fact rather than what it actually is: educated projections based solely on historical trends.
Nobody can say for sure what the economy will do in 2011. Are we heading towards a rebound or a double-dip recession? Not even the finest economic minds in the country can seem to agree. Because of this inability to accurately predict the direction of the economy, there exists no foolproof method for determining exactly what the stock market or the economy in general will do going forward. So be very careful about any free yearly predictions advocating a “sure-thing,” because when it comes to the stock market there is “no such thing as a sure thing.”