Analyze What trend do you notice

Table of Contents Show

Finding Trends
Potential Weak Points in Trend Analysis

Regression Analysis >

Trend analysis aims to find patterns in data, such as this simple upwards trend.Trend analysis quantifies and explains trends and patterns in a “noisy” data over time. A “trend” is an upwards or downwards shift in a data set over time.

In economics, “trend analysis” usually refers to analysis on past trends in market trading; it allows you to predict what might happen to the market in the future. It might, for instance, be used to predict a trend such as a bull market run.

Finding Trends

Various tools exist to analyze trends in data. They range from the relatively simple (like linear regression) to more complex tools like the Mann-Kendall test, which may be used to search for non linear trends. Some other popular tools include:

Most tools to model trends are one form of regression or another (Chandler & Scott, 2011). You can find dozens more trend analysis tools on the main Regression Analysis page.

Potential Weak Points in Trend Analysis

Although trend analysis can be extremely helpful in many applications—from climate change to sociological analysis—it’s important to keep in mind that it is not foolproof. In particular:

All data (unless gathered through a population census) is liable to sampling error. The extent of this problem will increase when coarse sampling methods (e.g. convenience sampling) are used.
Data is likely subject to measurement error; random, systematic, or external; trends in this error may be mistaken as trends in the actual data.
“Phantom”, short term trends exist even in the most random of number sequences, so trends should be followed out as long as possible.

Also, finding no trend may mean there is no trend, but it may just as likely mean that your data is insufficient to illuminate a trend which does in fact exist.

References

Chandler, R. & Scott, M. (2011). Statistical Methods for Trend Detection and Analysis in the Environmental Sciences. John Wiley & Sons.
Shea, Dennis, & National Center for Atmospheric Research Staff (Eds). Last modified 05 Sep 2014. “The Climate Data Guide: Trend Analysis.” Retrieved from https://tinyurl.com/y3vfje9a on May 20, 2018.

---------------------------------------------------------------------------

Need help with a homework or test question? With Chegg Study, you can get step-by-step solutions to your questions from an expert in the field. Your first 30 minutes with a Chegg tutor is free!

Comments? Need to post a correction? Please Contact Us.

In order to continue enjoying our site, we ask that you confirm your identity as a human. Thank you very much for your cooperation.

Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment.

Trend analysis tries to predict a trend, such as a bull market run, and then ride that trend until data suggests a trend reversal, such as a bull-to-bear market.
Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.
Trend analysis focuses on three typical time horizons: short-; intermediate-; and long-term.

Trend analysis tries to predict a trend, such as a bull market run, and ride that trend until data suggests a trend reversal, such as a bull-to-bear market. Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term.

A trend is a general direction the market is taking during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend.

Trend analysis is the process of looking at current trends in order to predict future ones and is considered a form of comparative analysis. This can include attempting to determine whether a current market trend, such as gains in a particular market sector, is likely to continue, as well as whether a trend in one market area could result in a trend in another. Though a trend analysis may involve a large amount of data, there is no guarantee that the results will be correct.

In order to begin analyzing applicable data, it is necessary to first determine which market segment will be analyzed. For instance, you could focus on a particular industry, such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such as the bond market.

Once the sector has been selected, it is possible to examine its general performance. This can include how the sector was affected by internal and external forces. For example, changes in a similar industry or the creation of a new governmental regulation would qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take moving forward.

Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already price in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends.

Trend traders attempt to isolate and extract profit from trends. There are many different trend trading strategies using a variety of technical indicators:

Moving Averages: These strategies involve entering into long positions when a short-term moving average crosses above a long-term moving average, and entering short positions when a short-term moving average crosses below a long-term moving average.
Momentum Indicators: These strategies involve entering into long positions when a security is trending with strong momentum and exiting long positions when a security loses momentum. Often, the relative strength index (RSI) is used in these strategies.
Trendlines & Chart Patterns: These strategies involve entering long positions when a security is trending higher and placing a stop-loss below key trendline support levels. If the stock starts to reverse, the position is exited for a profit.

Trend following is a trading system based on using trend analysis and following the recommendation produced to determine which investments to make. Often, the analysis is conducted via computer analysis and modeling of relevant data and is tied to market momentum.

Indicators can simplify price information, as well as provide trend trade signals or warn of reversals. They may be used on all time frames, and have variables that can be adjusted to suit each trader's specific preferences.

Usually, it is advisable to combine indicator strategies or come up with your own guidelines, so entry and exit criteria are clearly established for trades. Each indicator can be used in more ways than outlined. If you like an indicator, research it further, and most importantly, test it out before using it to make live trades.

A trend is the overall direction of a market during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trends are identified by drawing lines, known as trendlines, that connect price action making higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend.

Trend trading strategies attempt to isolate and extract profit from trends by combining a variety of technical indicators along with the financial instrument's price action. Typically, these include moving averages, momentum indicators, and trendlines, and chart patterns.

Moving averages strategies involve entering into long, or short, positions when the short-term moving average crosses above, or below, a long-term moving average. Momentum indicator strategies involve entering into positions when a security is exhibiting strong momentum and exiting when that wanes. Trendlines and chart pattern strategies involve entering long, or short, positions when a security is trending higher, or lower, and placing a stop-loss below, or above, key trendline support levels to exit the trade.