A trend is something that seems to be going around at any given time. It can be in fashion, pop culture or entertainment; it can also be a stock market trend that is bullish or bearish, depending on economic indicators; or even a political trend that reflects a nation’s current mood. Trends can be fun, fabulous or appalling, but regardless of their nature, they are always short-lived. That’s because there is always an engineer out there inventing a machine or technology that will address a problem more efficiently and thus create a new trend.
Trend analysis can be used in a variety of ways to help make more informed business decisions. For example, if you see that sales of one of your products are declining steadily over time, it may be time to bring in a new product line or change the marketing strategy for that particular product. Conversely, if you notice that sales of another product are increasing rapidly, it is a good idea to capitalize on this positive trend by expanding the production or marketing of that product.
Many companies rely on trends in order to stay competitive in their respective markets. For example, a clothing company that can spot a shift in consumer tastes can design and produce garments accordingly, thus creating a profitable niche. Likewise, an auto manufacturer that can predict changes in fuel efficiency can design and produce vehicles that meet these demands.
As the economy becomes more and more volatile, it can be difficult to determine what trends are real and which ones are just fads. In order to avoid wasting resources on products that won’t last, businesses need to perform thorough trend analysis. A trend analysis is a statistical method for identifying and validating patterns in data, and can be conducted on any type of data set.
Performing a trend analysis on a data set requires that the underlying variables be numerical and in a numeric format. Once these criteria are met, a trend can be determined by drawing lines, called trendlines, that connect the price action making higher highs and lower lows for an uptrend or the opposite for a downtrend.
Most trends seem to appear out of nowhere, but in reality, they are usually the result of a combination of multiple lesser trends merging together and meshing. For example, electronic tax filing emerged as a new trend partly because it logically followed the trends of paperless documentation and spreadsheet programs.
Microsoft’s Excel spreadsheet program includes a trend analysis function that automatically calculates linear trendlines for your data and graphically displays them, making it easier to identify potential trends. Other BI software, such as IBM’s SPSS statistics software, is designed specifically for interactive statistical trend analysis. It allows you to select the underlying variable, specify the starting point for the trendline (which must be within the data range), and choose from a list of options that control how the resulting chart is populated, including the option to include a reference field in the bottom left of the screen.
