Trend analysis is a form of comparative analysis that is often employed to identify current and future movements of an investment or group of investments. The process may involve comparing past and current financial ratios as they related to various institutions in order to project how long the current trend will continue. This type of information is extremely helpful to investors who wish to make the most from their investments.
The process of a trend analysis begins with identifying the category of the investments that are under consideration. For example, if the investor wishes to get an idea on the potential for making a profit with pork bellies, the focus will be on the performance of pork bellies in a commodities market. The analysis will include more than one supplier for the commodity, in order to get a more accurate picture of the current status of pork bellies on the market.
Once the focus is established, the investor takes a long at the general performance for the category over the last couple of years. This helps to identify key factors that led to the current trend of performance for the investment under consideration. By understanding how a given investment reached the current level of performance, it is then possible to determine if all or most of those factors are still exerting an influence.
After identifying past and present factors that are maintaining a current trend in performance, the investor can analyze each factor and project which factors are likely to continue exerting influence on the direction of the investment. Assuming that all or most of the factors will continue to exert an influence for the foreseeable future, the investor can make an informed decision on whether to buy or sell a given asset.
A trend analysis may be used to identify and project upswings in the performance of a stock or commodity, or to identify the potential for an upcoming downturn in value. By comparing the financial ratio of the past with the present and identifying key factors that helped the investment to arrive at the current point, it is possible to use the process of trend analysis to project future worth and adjust the components of the financial portfolio accordingly.
