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Freehand or Graphic Method

This document discusses several methods for analyzing trends in time series data: 1. The freehand or graphic method involves plotting the data points and drawing a best-fit straight line by eye. It is simple but subjective. 2. The method of semi-averages divides the data into two groups, calculates the mean of each, and connects the points with a straight line. It is objective but assumes a linear relationship. 3. The moving average method uses averages over a selected period, like 3 or 5 years, to smooth out seasonal and irregular variations. It is easy to understand but cannot calculate trends for all years. 4. The method of least squares aims to minimize the sum of squared deviations to

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Nidhi Singh
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5K views11 pages

Freehand or Graphic Method

This document discusses several methods for analyzing trends in time series data: 1. The freehand or graphic method involves plotting the data points and drawing a best-fit straight line by eye. It is simple but subjective. 2. The method of semi-averages divides the data into two groups, calculates the mean of each, and connects the points with a straight line. It is objective but assumes a linear relationship. 3. The moving average method uses averages over a selected period, like 3 or 5 years, to smooth out seasonal and irregular variations. It is easy to understand but cannot calculate trends for all years. 4. The method of least squares aims to minimize the sum of squared deviations to

Uploaded by

Nidhi Singh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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FREEHAND OR GRAPHIC METHOD

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This is the simplest method of studying trend. Steps for obtaining a straight line trend by this method are: Plot the given time series on a graph paper. Examine the direction on the trend on the basis of plotted points. Draw a straight line which well best fit to the data according to personal judgement. This line given the direction of trend. Following care should be taken in to consideration while fitting a trend line by free hand method. Smoothing. It should be smooth to remove all the irregularities. It should be either a straight line or a combination of long gradual curves.

2. The sum of the vertical deviations from the trend of the annual observations above the trend should be equal to the sum of the vertical deviations from the annual trend of observations below the trend. 3. The sum of the squares of the vertical deviations of the observations from the trend should be as least as possible. 4. The trend should cut the cycles into halves in such a way that the areas above the trend equal those below the trend. This condition may not be always fulfilled but attempt should be made to meet this condition as much as possible.

Merits and Demerits of Free Hand Method


Merits : 1. It is the simplest method of measuring trend. 2. It is very flexible. 3. An experienced statistician who is familiar with the institutional setting or economic history of the concern may well be able manually to fit a trend than the one which is set by using mathematical model. Demerits: 1. It is based on the personal judgement of the investigator. Different persons may have different personal judgement and we may have different trend lines for the same set of the data. 2. Since it is highly subjective, it cannot be left to unexperirnced and untrained people. 3. It is a time consuming process. 4. It cannot be used for future predications as it is based on personal judgement.

METHOD OF SEMI AVERAGES


In this method the given data is divided into two groups preferably with same number of year. After that, an arithmetic mean of each part is obtained. We then get two points are plotted at the midpoint of the class interval covered by their respective parts. Then the two points jointed by a straight line which gives us the required trend line. Merits: It is simple to understand than the other models such as moving averages method, method of least squares. It is an objective method. Everyone will get the same answer by this method. Demerits: It always assumes the straight line relationship between the plotted regardless of the fact whether that relationship exist or not. Since it is based on the arithmetic mean, limitations of the arithmetic mean shall automatically apply.

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MOVING AVERAGE METHOD


This method is used when seasonal variations and irregular variation are involved this method is generally used when length of the period is large. While applying this method a period of moving average is selected such as 3 yearly moving average 5 yearly moving average 4 yearly moving average etc.

Merits and Demerits of Moving Average Method


Merits: It is simple to understand and easy to compute. It is a flexible method. It is effective if the trend of the serious is irregular. Cyclic fluctuations are automatically if the period of moving average coincides with the period of cyclic fluctuations. Demerits : Trend values cannot be computed for all the year. For example, in 5year moving average, the trend values cannot be obtained for the first two and last two year. There is no fixed rule for selecting the period of moving average. This method cannt be used in forecasting as it does not involve any mathematical function.

METHOD OF LEAST SQUARES


This is a mathematical model to determine the trend. It is based on the following two conditions: 1. The sum of deviations of the actual vales of y

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