APPENDIX A
Smoothing with moving averages
The tool
‘Life is a roller-coaster, just gotta ride it’, crooned Ronan Keating. As with life, so too perhaps with a market. You have just got to ride it.
Where markets have been up and down, showing no consistent trend, take care with the H step (assessing the historic growth rate) of the HOOF approach to demand forecasting (Tool 18).
The best way to iron out market volatility is to plot a graph on logarithmic paper and draw a line of best fit through the points.
But you may not be comfortable with graphs, especially those of the logarithmic variety. A simple, non-graphical alternative is to translate the data into moving averages. This enables annual fluctuations to be smoothed out, making it easier ...
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