What it is:
How it works (Example):
A trend analysis is a method of analysis that allows traders to predict what will happen with a stock in the future. Trend analysis is based on historical data about the stock's performance given the overall trends of the market and particular indicators within the market.
Trend analysis takes into account historical data points for a stock and, controlling for other factors like the general changes in the sector, market conditions, competition for similar stocks, it allows traders to forecast short, intermediate, and long term possibilities for the stock.
Why it Matters:
By watching the general trends of the markets, a trader may be able to match purchases and sales of particular stocks, maximizing his or her potential for profits. At the same time, it is important to look at historical data in a larger context of conditions for the underlying company to understand if there are factors that may affect a stock's value irrespective of general market conditions or past performance. For example, a trader should look inside the financial conditions of the company, understand the market and technologies, and anticipate competitive pressures on the company within its sector. All of these tolls, as well as trend analysis, benefit a trader.