Market trend

Markets are comprised of many different people, broadly separated into producers and consumers. Producers create or provide the products and services, while consumers are the people who use them. Both Read more

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Andrew HutchinsonWriter/Consultant at www.andrewhutchinson.com.au
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Prosper TaruvingaDigital Marketing Expert at Livelong Digital Pty Ltd

Market trend

Markets are comprised of many different people, broadly separated into producers and consumers. Producers create or provide the products and services, while consumers are the people who use them. Both producers and consumers operate in the market environment, which can be understood as the broad range of interconnected factors which create the specific requirements and processes of that industry. This includes regulatory requirements, cultural attitudes, traditions and logistical considerations. As markets are made up of people they are constantly changing over time, and while typically these changes are slow and steady, new innovations or changes to a market environment can cause rapid and drastic changes. Understanding and predicting market trends is therefore an incredibly valuable skill for business owners.

What is a market trend?

A market trend, in the broadest sense, is the change of a particular market over time. The sorts of trends business owners are interested in are wide, and include changes in supply and demand, growth of the market as a whole, changes in market share, adoption of new products and the entry of new businesses seeking to capitalise on the marketplace. This list is by no means exhaustive, and innovative business owners often recognise and track less obvious market trends in order to gain an edge over their competition.

Understanding the interaction between the real world environment and market environments often allows intelligent business people to predict market trends before the general public and thereby gain an advantage. An example popularised in the movie The Social Network is the relationship between meteorology and heating oil futures - in the movie Mark Zuckerberg (played by Jesse Eisenberg) points out that if you can accurately predict the weather, you can accurately predict the price of heating oil, allowing you to profit by buying and selling heating oil futures. This is just one of countless connections between the real world and global markets.

What are the main factors which impact market trends?

As noted, marketplaces are extremely complex and consist of huge groups of people making independent decisions. Market trends represent the aggregate of all of these decisions, and therefore no matter how regular or predictable they may seem on the surface there are simply too many factors to predict them with certainty. With that said, the biggest factors which influence market trends are:

  • Governments: the governing bodies of countries have a huge amount of power over the marketplaces inside those countries, or the marketplaces dependent on them. Changes in regulation have the power to open up new markets or destroy markets entirely. Understanding the social forces which lead to regulatory change is therefore one way of predicting trends early.
  • Speculation: in all markets, there are players who are seeking to gain an edge over the competition and profit from speculating on future trends. These speculators themselves exert a force on the marketplace, which can lead to interesting and counterintuitive market trends. The counterintuitive nature of speculation is what led Warren Buffett to famously state “be fearful when others are greedy, be greedy when others are fearful”.
  • Supply and demand: this fundamental force is one of the most powerful determiners of price and availability of products and services, and the range of factors which impact it are too many to count.