Analysis Research Index
Understanding ARI in 4 Minutes
What do you get with ARI?
ARI is a unique stock trend prediction tool that scores a specific stock based on Technical, Fundamental, and Sentimental analysis. It reduces all the research down to a single 30 point score. The score takes in consideration independent values that were calculated from the 3 groups based on a fair weight system derived exclusively by TradeCaddie. The closer to 0 the score the more bearish (down), whereas the closer to 30 the more bullish (up) the stock is predicted to trend. A score of 11 to 19 would indicate a stagnant trend.
The Details Behind ARI
Technical Analysis is a 200 year old process where followers of financial markets forecast the future direction of prices through the study of past market data. Since its birth in the 17th century which was created to analyze Joseph de la Vega's accounts in the Dutch markets, it has greatly evolved.
At the end of the 19th century the collected writings of Dow Jones inspired the Dow Theory which used charting and many other more modern statistical data formulas to make a price point prediction. The primary use of Technical analysis is used to identify price patterns and trends in financial markets and therefore exploit those patterns.
There are several different systems used to determine technical analysis (e.g. candlestick charting, Dow Theory, and Elliott wave theory). Many traders combine elements from more than one school of thought.
Fundamental analysis is the study of economic factors that influence prices in financial markets. It involves analyzing the financial statements, health, management team effectiveness, competitive advantages, and its status in relation to its competitors and markets. The goal of fundamental analysis is: 1) to determine the stock value and predict its direction, 2) to make a projection on the business performance, 3) to evaluate the management and internal business decisions, and 4) to calculate its credit risk.
The contrast between Fundamental and Technical Analysis is that fundamental analysis maintains that markets may misprice a security in the short run but the correct price will eventually be reached. However, Technical analysis maintains that all information is reflected already in the stock price and trends are your friend whereas sentiment changes predicted trend directions.
For more on Fundamental Analysis, check out our Power Trader Radio Show - Episode 120.
Sentimental Analysis involves classifying opinions of market direction for an asset into categories like buy, sell, or hold. Sometimes referred to as the voice of the customer or opinion mining it is expressed in the volatility of the stock. Conflicting ideas between traders exist at all times; however the quantity of bearish trades to bullish trades can be calculated as the reaction of investors to current events. This reaction can be measured in time using at least 5 different data values (news, open interest put/call ratio, volume put/call ratio, volatility, and competitor contrast analysis).
Sentimental analysis is highly used by day traders in concert with technical analysis. Sentimental analysis is where the tire meets the road. It is here that the buying and selling are or will soon happen. The investment community reaction to news events, earnings reports, lawsuit's, believe in the company, environmental factors, and emotion are key factors in determining how investors will react to the underlying asset. In some aspects this is the hardest analysis tool to predict. But when used properly it can make the difference between making and losing money.
ARI Puts Them All Together
ARI automatically does the deep research and places a value on key factors within all of these areas and produces three independent scores. The scores are weighed properly using an algorithm derived exclusively by TradeCaddie and produces a single score. Using this score an investor should be able to trade the underlying asset in the same direction most experienced traders would.
The single score is provided side by side next to the composite score of the individual scores of the 3 groups. For example the Score Board resembles the following:
The first larger number is the single score. The following three numbers are the individual group scores (technical, fundamental, and sentimental.. respectively). The user can click on any number and retrieve a full report detailing the data that was used in the calculation. This offers validity to the client that the system is using sound judgment and correct values in deriving the score.
ARI offers no guarantees and should be used with sound judgment and good reasoning. World events can make the market unpredictable and therefore risky; however ARI attempts to compensate by giving investors a quality method of doing the deep analysis in a rapid period of time.