Trend lines are elements of the technical analysis apparatus that are used to identify the dynamics of price changes on different types of exchanges. They represent a certain geometric display of the analyzed average values of indicators obtained using some kind of mathematical function.
Instructions
Step 1
A linear trend expresses a function: y = ax + b, where a is the value by which the next value in the time series will be increased; x is the number of the period in a certain time series (for example, the number of the month, day or quarter); y is the sequence of analyzed values (this can be monthly sales); b is the intersection point that will intersect with the y-axis on the chart (minimum level). Moreover, if the value of a is greater than zero, then the growth dynamics will be positive. In turn, if a is less than zero, then the dynamics of the linear trend will be negative.
Step 2
Use a linear trend to forecast individual time series where data is increasing or decreasing at a constant rate. When building a linear trend, you can use Excel. For example, if you need a linear trend to forecast sales by months, then make 2 variables in the time series (time - months and sales volume).
Step 3
You will have the same linear trend equation: y = ax + b, where y is sales, x is months. Build a graph in Excel. On the x-axis, you will get your time period (1, 2, 3 - by months: January, February, etc.), on the y-axis, the change in sales. Then add a trend line on the chart.
Step 4
Extend the trend line for forecasting and determine its values. In this case, you should only know the time values along the X axis, and you need to calculate the predicted values using the previously specified formula.
Step 5
Compare the obtained predicted linear trend values with the actual data. Thus, you can determine the growth in sales as a percentage.
Step 6
You can adjust the predicted values of the linear trend in the event that you are not satisfied with the growth, i.e. you understand that there are components that can affect it. If you change the value of “a” in the linear trend y = ax + b, then you can increase the slope of the trend. So you can change the slope of the trend, the level of the trend, or both at the same time.
