Starting the Predictable Market Logic: First Steps.

Market forecasting, at least in theory, isn’t far off. After establishing the Speculation Volume in the previous post, I arrived at a Forecast Function, which is presented below:

Where F is the forecast, In is the number of investors, SA is the number of stable assets, and SV is the Speculation Volume. What would the scenario look like? Follow along below:

Imagine a market environment in which 4,000 investors identify 2,000 stable assets, in a 25% speculation scenario. In this case, the value of F is 1.75, suggesting that demand for stable assets is significant relative to supply, even though speculation reduces the forecast value.

Meanwhile, in the same scenario but with 5% speculation, F changes to 1.95. Based on an oscillatory forecast parameter for F ranging between +2 and –2, the result suggests the market is in a phase of high confidence, with significant demand for stable assets and low speculation. This reduction in speculation may indicate a more stable and predictable market.

In the above scenario, high demand for stable assets drives their prices upward. Low speculation creates a more stable and predictable market environment, reducing volatility and risk.

Furthermore, with strong demand for stable assets, investment opportunities outlined by low speculation make the market more attractive than ever, indicating high-probability returns. Thus, in this second scenario, the market can be classified as high confidence, which tends to lower volatility.

How can this be achieved? First: Monetary policies. Central banks should implement expansionary measures to increase market liquidity and stimulate demand for stable assets. Second: Market regulation. Rules to reduce speculation and promote transparency are highly recommended, including stricter requirements for institutional investors. Another consideration: Investment diversification. Investors can diversify their portfolios to include more stable assets, such as government debt securities or shares of companies with a proven track record of stability and growth.

Financial education should not be overlooked either. It can help investors make more informed decisions to reduce speculation, promoting a sustainable, long-term approach to better investments.

Macroeconomic stability also plays a role. It’s essential to build investor confidence and curb speculation through prudent fiscal and monetary policies. Additionally, transparency and governance must be prioritized: corporations need to act transparently and with strong governance to foster investor trust and help reduce speculation. Companies should be open about their operations and finances, supported by effective corporate governance.

Lastly, risk management cannot be left out. It’s vital for reducing speculation and promoting market stability. Investors need to adopt more effective risk management strategies to handle the unforeseen events inherent in investment activities.

Measures like these help create a stable and predictable market environment, which can contribute to achieving an F value of 1.95. However, the market’s configuration is complex and influenced by many factors, so these measures must be implemented in a coordinated and sustainable manner.

In the next post, I will cover stable assets and more robust ways to reduce speculation. This is just the beginning of a journey toward a more predictable and stable market, one that could help address a range of issues — from refugees and the underprivileged to the resolution of wars and economic crises. Finally, this topic is of utmost importance and merits reflection from everyone. See you in the next post.