Patterns and trends are powerful. Certain kinds of patterns and trends change the way we think or operate. Trends can be things like sustainability, energy independence, women in business, online shopping, digital marketing, and workplace flexibility as examples. These past patterns and trends change the way consumers act and spend their money.
A pattern is a recognizable set of data. A trend is the direction of data over a period. Patterns and trends are concepts that are used a lot within what is called technical analysis or charting in the stock market. Many stock technicians look for chart patterns that have happened in the past to determine if the stock may be setting up to do something predictable in the future.
Patterns or Trends in Charting
The same holds true with trends. A chartist looks for the overall trend over a period of time to determine direction or other information. Many times you will hear investors refer to trend lines or moving averages which are lines drawn on a chart to help a chartist potentially see the long term direction of stock, or when the stock breaks that trend line and is setting up to do something different than it’s been doing.
These patterns and trends can be powerful indicators within charting or stock investing. The problem with charting is that it only tells you what has happened and not what is going to happen. It’s a lagging indicator, so using it to get a head of the crowd is a losing proposition.
Because patterns and trends are so powerful there is a way to capitalize on them where an investor can put themselves on the front end of the wave. It’s difficult to predict the large picture success of trends such as those mentioned above. The trick is finding patterns or trends in the financial statements of a large investible corporation.
Most large corporations are large engines that are fed by the revenue from the products or services they provide. They are constantly keeping tabs on current revenue streams as well as looking for new revenue streams. Large corporations are like giant oil tankers or aircraft carriers in the sea. They can go forward rather quickly, but turning quickly doesn’t happen.
When a large corporation finds added revenue sources or is capitalizing on a societal pattern or trend this shows up in their financials as a leading indicator. It can take multiple quarters for it to be recognized or even over years. What an investor needs to look for is if this aircraft carrier is starting to make a pattern turn in a different direction and if that is going to turn into a trend.
Since large corporations can’t turn quickly if certain aspects of their financials are moving in a positive direction that can be a good sign. Just as it takes them time to turn upward it can also take time to turn downward. If a corporation is capitalizing on something new or different then its patterns and trends will be reflected in their financials. This pattern will catch the attention of the industry analysts and institutional investors who will be on the front end of buying the stock and driving it upward. This will start a trend in the stock’s movement which will show up later on the chart of the stock as a lagging indicator.
Let GWA help you. Send us an email at our Contact page.