What Is a Market Trend Analysis?

Daniel Liden

People who try to predict the behavior of financial markets over time based on analyses of past market behaviors and other factors are engaging in market trend analysis and are referred to as market trend analysts. A market trend analyst usually wants to conduct such analyses in order to gain profit. Buying stocks, exchanging money, or engaging in a variety of other financial activities at certain times can lead to substantial financial gain in the future. Some people and companies develop and use computer programs to analyze market trends, as such programs can often provide nuanced mathematical detail much more quickly than a human analyst can. Market trend analysis is based largely on the premise that past behaviors of financial markets can provide information about the future.

By comparing multiple graphs, a market trend can be identified.
By comparing multiple graphs, a market trend can be identified.

Market trend analysis is primarily based on identifying trends in financial markets and determining the significance of those trends. There are several different categories of trends. Generally consistent, long-term behavior in a financial market is referred to as a secular trend, though such a trend does not always need to be moving in the same direction. A generally upward secular trend means that the financial market is generally increasing in price and value over time, though there can be smaller intermittent upward and downward fluctuations over shorter time scales. Other types of trends relevant to market trend analysis include primary, or intermediate-term, trends and secondary, or short-term, trends.

Market trend analysis is typically used to advise good financial market moves.
Market trend analysis is typically used to advise good financial market moves.

The main goal of market trend analysis is to make or advise good financial market moves based on the trends identified. The casual market analyst may make decisions based only on a cursory look over graphs representing trends for the past few months or years. More serious analysts often include in-depth mathematical analysis in their market trend analyses and are likely to use software to aid them in this task. While it is not possible to predict every single change in a financial market, a careful analysis can lead one to make far better decisions.

Many financial market trend analysts do not use outside information, such as internal changes in a given company's organization or scandals affecting a company's reputation. The general idea is that the sentiments and opinions of the investors who actually cause market trends can be observed through market trend analysis. As such, informed decisions can be made based on these trends instead of the primarily-speculative decisions that one could make based on outside information.

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