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4.13.3Polynomial Trend line
A polynomial trend line is a curved line that is used when data fluctuates in a rhythmic manner. It is useful, for example, for analyzing gains and losses over a large data set. The order of the polynomial can be determined by the number of fluctuations in the data or by how many bends (ups and downs) appear in the curve. An Order 2 polynomial trend line generally has only one up or down. Order 3 generally has one or two ups or downs, and similarly order 4 generally has up to three ups or downs and so on.
Example: Sale of seasonal fruits in the past 10 years
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EXAMPLE OF A POLYNOMIAL TREND LINE FOR ALCOHOLIC DRINKS
How does polynomial trend line compute?
A polynomial or curvilinear trend line is drawn by using the following equation to calculate the least squares fit through points:
y = b + c1x + c2x2 + c3x3+ . . . + c6x6
where b and c1,c2,.....,c6 are constants.
Guidelines:
A polynomial trend line is a curved line that is used when data fluctuates. Based on the number of fluctuations, the order of a polynomial trend line can be decided
A polynomial trend line fitted throughout a long data series will be incapable of revealing short-term market fluctuations, such as seasonal patterns
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