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A trendline is based on a data series. When you add a trendline to a chart, you indicate which series the trendline is based on. The trendline looks like a data series in many ways but, because it doesn't contains a series of many ups and downs, appears less chaotic than the source data series line. A trendline can be added to a data series in a Line, Area, Bar, Column, or XY (Scatter) chart.
Figure 1 shows an Excel chart with a trendline. The source data series line is replete with ups and downs. The trendline is the straight line that seems to slice right through the actual series line. The trendline makes clear the overall direction of data values over time.
Figure 1: A trendline shows the direction of data values over time.
Adding a trendline to a chart
There are six types of trendlines: Linear, Logarithmic, Polynomial, Power, Exponential, and Moving Average. Each of these trendline types is formulated with a particular mathematical equation. You really don't need to understand the details of the equations, but if you're curious, you can look them up in the Excel Help system by searching on "trendlines."
To add a trendline to a chart, follow these steps:
1. Create or open a chart in which the categories are time-scale (dates).
Make sure the chart is one of a Line, Area, Bar, Column, or XY (Scatter) chart type.
2. Select the chart and choose Chart --> Add Trendline, or right-click on the data series and select Add Trendline.
The Add Trendline dialog box appears.
3. Click the Type tab to bring it to the top, if it isn't already on top (see Figure 2).
Figure 2: Selecting a trendline type.
4. Click one of the six illustrations on the Type tab to choose a trendline.
5. Select a data series from the Based on Series drop-down list box to indicate which data series you're adding a trendline to.
If you select Polynomial or Moving Average, you also select the order or number of periods to use, respectively.
6. Click OK to close the dialog box and see the trendline on the chart.
 | The trendline helps make clear the overall direction of the data series, which is particularly helpful if the data is highly erratic. |
Naming the trendline
By default, Excel provides a name for the trendline that is simply a combination of the series name with the trendline type. If you want the change the default name provided by Excel, here's how.
1. Double-click on the trendline.
The Format Trendline dialog box appears.
2. Click on the Options tab to bring it to the top.
3. In the Trendline Name section near the top, select the Custom option and enter a name.
4. Click OK to close the dialog box and see the change on the chart.
 | The Add Trendline dialog box and the Format Trendline dialog box share two common tabs: Type and Options. |
Applying a forward or backward forecast
Seeing the trend of the existing data is interesting enough, but it isn't always what you need. Often, a trend is used to extrapolate and see what values can be expected in the near future. If you have a good reason to believe a stock's value will go higher, you'll invest in it. Forecasting attempts to answer where the value is headed.
You can extend the trendline backward or forward to see where the value might have been and especially where it might go. Here's how to add a forward forecast to your charts:
1. Double-click on the trendline.
The Format Trendline dialog box appears.
2. Click on the Options tab to bring it to the top.
3. In the Forecast section, enter a value for the Forward Periods.
The periods match the time-scale of the series data, so if the series data is daily, the entered number is the number of days to extend the trendline.
4. Click OK to close the dialog box and see the change on the chart.
The trendline on the chart now extends past the source data.
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