Trend analysis attempts to predict a trend, such as a bull market, and take advantage of that trend until the data suggests a reversal of the trend, such as from a bull market to a bear market. Trend analysis is useful because moving with trends, and not against them, will generate profits for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-term, medium-term, and long-term.
A trend is a general direction that the market takes over a specific period of time. Trends can be both bullish and bearish, and relate to bull and bear markets, respectively. While there is no specific minimum amount of time required for a direction to be considered a trend, the longer the direction lasts, the more pronounced the trend will be.
Trend analysis is the process of observing current trends to predict future ones and is considered a form of comparative analysis. This can include the attempt to determine whether a current market trend is likely to continue, such as gains in a particular market sector, as well as whether a trend in one area of the market could result in a trend in another. Although trend analysis may involve a large amount of data, there is no guarantee that the results will be accurate.
