Anthony F Herbst - Analyzing and forecasting future prices

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Anthony F Herbst - Analyzing and forecasting future prices

Postby acepsut » 29 Jul 2011, 12:56

A Guide for Hedgers, Speculators, and Traders

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Overview *

To many traders, the idea that prices can be accurately forecast is a kind of heresy. But the fact is that there are now concrete analytical methods that can be used to forecast trends and turning points in futures prices--despite the difficulty of forecasting day-to-day changes. Analyzing and Forecasting Futures Prices is an advanced and highly practical guide to the latest methods of analyzing and predicting futures prices and applying them to hedging and speculation. Like no other guide, it offers practical techniques you can use now even with minimal expertise in mathematics. You'll find clear, detailed explanations of several field-proven but little understood methods of forecasting futures prices--including spectral analysis, array analysis, and time series analysis. And step-by-step, you'll see how commodity and financial prices can be analyzed accurately. How cycles in the series can create the patterns technical analysts look for. And how to make accurate price forecasts. Written by a noted authority on cyclical market behavior who specializes in the mathematical analysis of futures prices, Analyzing and Forecasting Futures Prices gives you the tools you need to use your spreadsheet program to gain insights into cycles in time series. Use different methods in a combined program. Even measure the performance of any forecasting method in a formal, statistical way. Plus, the techniques you'll find in Analyzing and Forecasting Futures Prices can also be used for forecasting individual stock prices and interest rates. For any trader or speculator in the risk-filled futures market, this may be the one reference that won't just sit on your shelf.

Editorial Reviews


Herbst (business administration, U. of Texas) reveals techniques by which the speculator in the futures market can predict prices. The trick is to find evidence of cycles in price series data, gauging the significance and estimating the parameters of those cycles, then combining them into a future curve. The calculations can be done with a spreadsheet on a personal computer. Annotation c. Book News, Inc., Portland, OR (

Table Of Contents

Chapter 1 Introduction 1
Futures Markets Today 2
What Forecasting Can and Cannot Do 4
Cycle-Based Forecasting Methods 4
Supply, Demand, and Price Cycles 6
Conclusion 8
Chapter 2 Market Efficiency and Price Behavior 11
Random Walk 11
Market Efficiency 12
Forms of Market Efficiency 13
Empirical Studies of Market Efficiency 14
Serial Correlation Tests 15
Filter Studies 16
Recent Evidence 18
Conclusion 19
Chapter 3 Speculation, Risk Bearing, and Money Management 21
Is Speculation Necessary? 22
Commodity vs. Stock Speculation 23
Leverage in Commodities Trading 23
The Role of Margin 24
Trading Costs 25
Who Should (and Should Not) Trade? 25
Choosing the Game 27
Straight Long or Short Positions 27
Spreads and Straddles 27
Risk Considerations 31
Entering and Lifting the Spread 32
Spreading for the Wrong Reasons 33
Money Management--Playing to Win! 34
Utility and Risk Aversion 35
Calculating Personal Utility 37
Pyramiding 41
Using Stop Orders 43
Limit Moves and Lock-In 44
Cutting Losses, Letting Profits Run 45
Portfolio Theory and Diversification 46
Risk of Ruin 49
Chapter 4 Fundamental and Technical Analysis 53
Fundamental Analysis 54
Demand 54
Supply 55
Price Determination 56
Market Equilibrium 57
Practical Considerations 59
Case Study: The Sugar Market 60
Technical Analysis 61
Traditional Technical Patterns 62
Head-and-Shoulders 62
Double Tops and Bottoms 63
Trends and Channels 65
Triangles and Wedges 66
Island Reversals 69
Other Patterns 70
Point-and-Figure Charting 72
Cycles and Technical Patterns 76
Conclusion 79
Chapter 5 Time Series Analysis and Forecasting 81
Forecasting Methods 82
Spectral Analysis 83
The Box-Jenkins Methodology 87
Case Study: Spot Gold 92
Appendix 5-1 Spectral (Periodogram) Analysis of DEC90 T-Bond Futures Settlement Prices 95
Appendix 5-2 Illustration of Test of Significance for T-Bond Cycle of 37.14 Days 103
Chapter 6 Visual and Manual Methods for Finding Cycles 105
Trend Removal 109
Conclusion 110
Chapter 7 Finding Cycles in Data with a Computer: Spectral Analysis 113
The Math behind Spectral Analysis 115
The Fast Fourier Transform (FFT) 118
Falling through the Gaps 119
Life without FFT 120
Application of Spectral Analysis 121
Summary 127
Chapter 8 Judging Whether a Cycle Is Genuine: Array Analysis 129
Definition of Genuineness 129
Array Analysis 130
Example: A Pure Cycle 130
Conclusion 144
Chapter 9 Moving Averages, Filtering, and Turning Points 147
Simple Moving Average 148
Exponential Moving Average 150
Moving Averages and Market Turns 150
Chapter 10 Forecasting with Cycle Combinations 155
Successive Removal vs. One-Pass Analysis 156
Example: Soybean Prices 157
Step 1 Spectral Analysis 158
Step 2 Successive Removal 158
Using a Backcast 163
Goodness of Fit 166
Chapter 11 "PDQ" or "Q and D"?: Maximum Entropy Spectral Analysis and Linear Prediction 167
Theory and Math behind MESA 168
Using MESA to Detect Cycles 170
Forecasting with Linear Prediction 174
MESA and Longer Cycles 176
Case Study: T-bond Futures Forecast 179
Caveats 181
Chapter 12 Comprehensive Case Study 183
Ordinary Spectral Analysis 184
Maximum Entropy Spectral Analysis 186
On the Raw Data 186
On the First Differences 187
Maximum Entropy with Linear Prediction 189
Forecasting with Synthesis of Cycles 192
Conclusion 194
Chapter 13 Using Cycles for Spread Trading and Hedging 197
Wheat/Corn 197
Gold/Silver 201
T-Bonds/Eurodollars 203
Hedging 204
Summary 204
Chapter 14 The Foundation for the Study of Cycles, by Richard Mogey 207
Author's Note 207
Cycle Synchronies 208
Origins of Cycle Analysis 210
Modern Cycle Analysis 211
Comparative Cycle Analysis 211
The Foundation's Methods of Analysis 212
Cycles in Economics, Business, and Weather 212
U.S. Stocks 213
Interest Rates 214
Metals 216
Commodities 217
Weather and Climate 218
The Economy 218
Conclusion 218
Appendix A Fitting Cycles with a Spreadsheet Program 221
Creating a Cycle 221
Fitting a Cycle of Given Period 223
Appendix B The Bartels Test 227
Appendix C Forecasting with Exponential Smoothing 229
Appendix D References and Selected Readings on Market Efficiency 231
Index 235

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