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What Is a Financial Trend Analysis?

In a trend analysis comparative graphs can be used to identify financial trends.
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  • Written By: M. McGee
  • Edited By: Lauren Fritsky
  • Last Modified Date: 09 December 2014
  • Copyright Protected:
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    Conjecture Corporation
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Financial trend analysis is the process of looking for patterns in financial systems in order to find the likelihood of future changes. By looking at a specific variable over time, such as the price of a stock, it is possible to see if there are any common themes in its ups and downs. For instance, a company that only makes tinsel for Christmas trees may have a sharp upswing every December. Most financial trend analysis is rarely that simple — it typically involves detailed accounting of time, environment and cultural factors.

Trend analysis is used in a wide range of fields and disciplines. The overall goal of the process, regardless of who is using it, is finding repeating trends in a system. Once found, the trends are examined further to find out why they happened and if they may happen again. After figuring out the cause of the trend, it is possible to look at the system’s current state to see if the cause is coming again. This helps the users of the system to make informed decisions on what they should do before a change occurs.

Most financial trend analysis can be broken down into two broad groups: market analysis and asset analysis. Market analysis looks at a segment of the marketplace to find likely trends in consumer habits. This information is used to decide if an uncommon project is correct for the current market and to decide whether to initiate new projects in certain areas.

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As public opinion shifts from one overarching viewpoint to another, businesses use financial trend analysis to find the likely state of the market at any given time. For instance, as the public mindset moves towards greener technologies, companies that make automobiles with very poor gas mileage know they need to spin their marketing in other ways. By knowing about this mindset in advance, the company can create targeted advertising that downplays unpopular features before they become unpopular.

The second common form of financial trend analysis looks at specific assets or industries from a non-consumer viewpoint. These types of studies look at things such as stock markets, raw material production and banking concerns. While market analysis focuses on a business making money on a consumer level, asset analysis is about making money directly through smart investing.

These types of trends are used to predict upswings in the stock market or raw material demand. Investors then use these trends to determine when they should buy and when they should sell assets. Through shrewd use of trends, investors can buy into a market when it is at its lowest and sell right as it peaks, maximizing profits.

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