Time Series

A time series is a sequence of observations indexed over time. In trading, time series forms an important part as it is used to track down the prices of a security over a period of time.

Example: Movement of a security’s price, over a specific period of time recorded at a regular interval.

Components of a time series:

1. Trend: Trend may show growth or decline in a time series over a long period.

2. Cycles: These are long term oscillations occurring in a time series. These movements generally extend from five to twelve years or more.

3. Seasonality: The periodic fluctuation of time series within a certain period. These fluctuations form a pattern that tends to repeat from one seasonal period to another. Unlike cycles, seasonal behaviour is very strictly regular, meaning there is a precise amount of time between the peaks and troughs of the data.

4. Irregular Fluctuation: These are sudden changes occurring in a time series which are unlikely to repeat. These cannot be explained by trend, seasonal or cyclic movement. This component is sometimes called as random movements in a time series.