Naive Prediction

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A naive forecasting model for equity is a special case of the moving average forecasting where the number of periods used for smoothing is one. Therefore, the forecast of entity value for a given trading day is simply the observed value for the previous period. Due to the simplistic nature of the naive forecasting model, it can only be used to forecast up to one period.
This model is not at all useful as a medium-long range forecasting tool of entity. This model really is a simplistic model, and is included partly for completeness and partly because of its simplicity. It is unlikely that you'll want to use this model directly. Instead, consider using either the moving average model, or the more general weighted moving average model with a higher (i.e. greater than 1) number of periods, and possibly a different set of weights.

Naive Prediction In A Nutshell

When using the naïve prediction, it is good for only a time series. Knowing how to compare and use data is important because there are hundreds upon hundreds of ways to analyze data and you have to be sure you are effectively analyzing the data.

If you find yourself looking at data, using naïve prediction is typically used as the benchmark predication, and takes previous data and does not alter it, allowing you to use other prediction models against it to see how they are doing.

Closer Look at Naive Prediction

Another aspect to look using naïve prediction is there could be seasonality in the market you are examining and this approach may not be the best to use. There are other factors to keep in mind such as drift and a shift in the average.

These are in depth formulas that can be manipulated and changed, but it is important to understand what goes into the equation because with that you can narrow in on the specific data that may be altering the results. There are many different resources to use on the Internet so be sure to fully understand what is happening before using this in your current setup. Join an investing group and see if other people are using this as you may find it is not widely used due to a various of reasons. Also, check out Macroaxis as there are many useful tools that can help expand your current trading setup.

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