Introduction
Market prediction is very challenging. Because the market movement depends on various factors, which includes fundamental, technical, sentiment and psychological aspects of the market participants. There is no method which can guarantee 100% accuracy in the market prediction. However, one can anticipate the probability of the market movement by analysing the technical, fundamental and sentiment of the market.
Although the market prediction is very difficult but it is very necessary for the traders as well as investors. Traders try to predict the market for the short term of duration, while the investors try to predict the market for the long term durations.
While no method guarantees 100% accuracy, traders and investors use various approaches to increase their probability of success. Here, we are going to discuss three main approaches as discussed below.
Approach to Market Prediction
1. Technical Analysis
Technical analysis is a method to evaluate and forecast future price of financial assets by analyzing historical market data using tools like price action, candlesticks, chart pattern, indicator etc.
For market prediction, it is very necessary to know what the market trend is. Based on the trend we try to find trade. Since, major movement will occur in sync with market context. Here to identify trends we have used the 50 moving average on day time frame. If the market is trading below the moving average that means the trend is bearish as clearly seen in fig-1.
Now, we will focus on the 5 min time frame candlestick chart of nifty50 on 22nd Oct 2024 (see fig-2). As already it is known the market is in a bearish trend so we try to find bearish moves based on technical analysis. For this we have drawn resistance (red horizontal line) and support line (blue horizontal line).
Resistance is drawn based on the level which is tested by the market again and again as shown in fig-2. As we can see before point 1 market tested this level and again at point 1 it tested and bearish engulfing candle formation takes place, at this point also a short trade can be executed but we waited for more confirmation and again market form pin bar candle at point 2 (shown with arrow above at point 2). And the second candle when the pin bar entry is made and we saw a sharp move with a risk reward ratio of 1:6.
2. Fundamental Analysis
Fundamental analysis focuses on a stock’s intrinsic value based on financial health, economic conditions, and business performance. Stock price moves according to the major fundamental parameters like earning reports, competitive advantage, GDP growth etc. Let’s understand it with various examples.
On January 27, 2025, Nvidia’s stock experienced a historic single-day decline of nearly 17%, erasing approximately $589 billion in market capitalization. This sharp drop was triggered by the announcement from Chinese startup DeepSeek, which unveiled its R1 AI model. The model was developed in just two months at a cost of under $6 million, without relying on Nvidia’s high-end GPUs. In 2025, Apple Inc. experienced a 24% decline in its stock value, including a 7.4% drop following its May 1 earnings release, as investors reacted negatively to the company scaling back its stock repurchase program from $110 billion to $100 billion despite strong financial performance.
Meanwhile, SharkNinja saw its stock jump 13% after surpassing earnings expectations with an operating profit of $0.87 per share and raising its full-year forecast; investor sentiment was further bolstered by the company’s strategic decision to relocate 90% of its U.S.-bound production out of China by mid-year, reflecting agility in responding to global and industry shifts. In contrast, The Star Entertainment Group faced a sharp 40% decline in share price between January 8 and 11, following a dismal quarterly report that revealed a $100 million cash burn and heightened concerns about potential insolvency, driven by weak consumer demand and tighter regulatory measures like the introduction of mandatory carded gaming.
3. Market Sentiment & Psychological Analysis
Besides technical analysis and fundamental analysis, human psychology also plays an important role in market Prediction. Greed, fear, herd mentality, and overconfidence can lead to irrational booms or sharp collapses. Below are real-world examples that demonstrate the power of sentiment in moving markets.
The Dot-Com Bubble (1995–2002) is one of the most striking examples of how market sentiment and investor psychology can override fundamentals. Fueled by excitement over the emerging internet economy, investors aggressively poured capital into any company associated with the “.com” label, often without regard for revenue or profitability. This widespread optimism pushed the NASDAQ Composite Index from around 1,000 in 1995 to over 5,000 by 2000. However, by late 2000, reality set in—many of these firms lacked sustainable business models. As fear replaced greed, a massive sell-off followed, and the NASDAQ plummeted nearly 80% by 2002. The collapse underscored the risks of herd mentality, FOMO (Fear of Missing Out), and overconfidence, revealing how sentiment can drive markets to irrational extremes.
Similarly, the GameStop and AMC “meme stock” frenzy in 2021 showcased how collective behavior and social media hype can inflate stock prices far beyond intrinsic value. Retail traders on platforms like Reddit’s r/WallStreetBets coordinated to buy heavily shorted stocks, leading to meteoric price surges—GameStop, for instance, soared from under $20 to over $480 in a matter of weeks. The rally had little basis in financial fundamentals and was largely driven by group psychology and a “David vs. Goliath” mindset against institutional short-sellers. As the momentum faded, stock prices sharply corrected, leaving many latecomers with losses. This episode further illustrates how market sentiment, driven by emotional and social forces, can create temporary distortions in asset prices, often leading to unpredictable market outcomes.
Conclusion
Market prediction involves a deep understanding of technical analysis, fundamental and psychological analysis. Yet hundred percent accuracy is not possible to achieve in market prediction. But by managing proper risk reward, risk and using knowledge of market prediction profitability can be achieved. And a lot of backtest sharpen skills of market prediction and boost confidence in live trading.
