A trend is a pattern of growth or decline in a subject over time. In business, a company might want to create a new product or service that takes advantage of a trend, such as the growing popularity of green energy or the increasing number of people buying electric cars. In financial markets, the term trend can refer to the overall direction of a market or asset’s price. Investors who use a form of technical analysis to evaluate stocks often identify trends by drawing lines, known as trendlines, that highlight when price action is making higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend).
A business might identify a potential new product or service by examining sales figures and looking at the competition’s products and services. A savvy manager might even have a team of employees dedicated to monitoring social media and news media to see what topics are getting the most attention and to try to predict future trends.
One challenge of identifying a trend is distinguishing a fad from a true business opportunity. Fads are popular, but they quickly die out. A business should only invest resources in a project that has a good chance of being a long-term trend.
For example, the current popularity of e-tax filing is a long-term trend that might be considered by an investor to have some staying power. However, it’s important to realize that the e-tax filing trend may have been made possible by other less significant trends, such as the availability of spreadsheet programs and the emergence of electronic document management systems. These other, more short-term, trends might not have had the staying power needed to become a true industry trend.
Trend analysis is also used in the field of finance and business to help companies plan for the future. For example, an investor might use a trend analysis to determine whether it’s likely that a certain stock will continue rising in value. To conduct this type of analysis, the investor gathers data on the company’s revenues, expenses and profits over the past five years. The investor might also look at the company’s competitors to assess the strength of the overall market.
Investors can perform a trend analysis by evaluating the data on their own or using a software program to identify patterns in the data. The program might allow the user to select a specific time period to analyze, as well as how to number the x-axis based on days, months, years or a clock. The program can also generate a line graph showing the trend of the selected data. This graph can help investors better visualize the trend and identify any peaks or valleys in the data. If the trend of the data appears to be upward, an investor might buy shares in a stock. A downward trend, on the other hand, might cause an investor to sell stock in a company. To avoid being caught off guard by an unexpected change in the trend, the investor might consider placing a stop loss below or above key trendline support levels.
