What is Trend Analysis?

Concept Of Trend Analysis

The concept of trend analysis can be defined by the approach for identifying current trend of a market, whether it is a bull market run thereby implementing effective measures for making a profit in both short term as well as in the long term. Trend analysis is considered as the overall analysis of a trend of a firm through comparing their financial statements in order to evaluate the current trend of a market or even for the analysis of the long run.

In addition to that, this analysis is solely conducted by analysing the past organizational performance. Experts believe that this approach helps a firm to minimise any potential risks and optimise overall organizational performance. Other than that, trend analysis is observed to be an attempt for making the best decisions based on organizational analysis. Trend analysis can also be defined as a technical analysis, which attempt to predict future stock price movements so that a firm can gain a competitive edge from the external marketplace.

Three Types Of Trend Analysis

As market trends are comprised of short-period cycles, hence, it is essential for a firm to implement effective trend analysis techniques as well as Ratio Analysis Assignment Help in order to maximise organizational growth and development. In the year 2010, popular multinational business, Coca-Cola was observed to gain a higher net income than that of PepsiCo with the help of effective trend analysis. It has been analysed that the consumer or market trend analysis might be categorized in three major sections.

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This includes geographic trend analysis which means that a marketer aims to analyse trends in a group that is denied due to geographic location. Another trend analysis is ‘temporal’, which means analysing the trends within a specific period of time. The last form of trend analysis is ‘intuitive’, which means analysing the trends on the basis of demographic as well as behavioural patterns or even other variables, which is perceived as an important component to the researcher.

Trend Analysis And Stock Price

As discussed, trend analysis is an effective technique for forecasting any future stock price movements on the basis of recently analysed trend data. Hence, it has been assumed that various small as well as large organizations for gaining profit in the equity market. Stock price is highly influenced by the change in market trends; thus, trend analyst emphasizes on implementing various strategies to gain an accurate overview about the market. Share market trend also known as equity market trend analysis is referred to the process of evaluating current trends for predicting future trends in stock price. With the help of share market trend analysis, as well as calculationg CAPM by capm Assignment Help a manager will be able to predict the growth rate in nearby future.

Application of Trend Analysis

Even though trend analysis is used for predicting future trends, however it can also be used for taking effective decisions, however, application of trend analysis includes statistical techniques for interpretation of data. Studies show that a trend analysis requires a firm to analyse their target market and analyse the overall performance of the industry or sector in which the business is operating. Analysing the trends such as internal and external business factors that were affecting this sector, various changes influenced by the technology as well as government regulations. With the help of these factors, an analyst can be able to predict future direction or growth rate of the business and stock price.

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Common Trend Trading Strategies

Trends follow various trading strategies, which might help these firms to gain a competitive advantage from the market. Furthermore, identifying entry as well as exit points, for improving the results. In addition to that, a firm should also be well-informed through technical as well as fundamental analysis as it might help them to spot various trends in the market. Some of the popular trend strategies include, ‘Bollinger bands’, ‘Moving averages’, ‘Bull and bear flags’, Triangle patterns’ among many others.

Bollinger bands is considered as one of the common strategies used for measuring volatility. This strategy assumes that price might bounce back similar to an elastic band. In this strategy, an analyst can show the highest & lowest points that the price can reach. On the other hand, moving averages is defined as the approach through which major trend traders can use to slow the moving average. Whereas, the bull & bear flags are considered to be opposite of each other. Hence, bull and bear flags can be incorporated in trend trading strategy by operating in the market. Lastly, triangle patterns (also known as wedge patterns) defines when a price is narrower and that eventually breaks in an uptrend or even in a downtrend.  

Pros and Cons of Trend Analysis in Forecasting

As discussed, trend analysis plays a vital role for any business worldwide, hence it can be assumed that trend analysis provided many advantages to a firm in forecasting. This includes, increased possibility of developing inter-firm comparison. Study shows that appropriate trend analysis assists an analyst for making a proper comparison between two and more firms within a specific period of time. This helps an analyst to identify potential strength or underlying threats of the firm. Apart from appropriate comparative analysis, an analyst also gains the ability to improve usefulness of a firm. This is because, a trend analysis includes accurate data and figures, which can help the management to take effective decisions.

On the other hand, a firm might also witness potential drawbacks due to trend analysis. This is because, trend analysis focuses on selecting a base year, which means a normal year is assumed as the base year. However, it is difficult for selecting any specific base year for calculating overall trend. Other than that, it is essential to follow any specific consistent accounting principle as well as policies because the trends in businesses are constantly changing. Lastly, analysis of trend can be ineffective during the time of price-level change, which refers to inflation. It has been studied that conducting an analysis during such change might lead to misleading result.