Beginner level · Module 5: Business Forecasting Basics · Lesson 1 of 3
Trends and Moving Averages
Smooth out noise with moving averages to see the underlying trend.
In this lesson you will
- Calculate moving averages
- Identify trend and seasonality in a chart
Key concepts
trendseasonalitynoisemoving average
The lesson
Monthly sales go up and down for many reasons. A moving average — for example the average of the last three months — smooths out the noise and shows the trend.
Seasonality is a pattern that repeats, such as higher sales before school terms or holidays. Look at several years if you have them.
A simple forecast is the latest moving average, adjusted for any clear trend or season.
Step by step
- Chart six months of sales.
- Calculate a three-month moving average.
- Add it to the chart.
- Describe the trend.
Seeing the trend with a three-month moving average
Monthly sales jump around; a three-month moving average shows steady growth underneath.
| Month | Sales (thousand SSP) | 3-month moving average |
|---|---|---|
| Jan | 820 | – |
| Feb | 860 | – |
| Mar | 900 | 860 |
| Apr | 880 | 880 |
| May | 950 | 910 |
| Jun | 1,010 | 946.7 |
What the data shows
Sales dipped in April, but the moving average — (860 + 900 + 880) ÷ 3 = 880 — kept rising: the dip was noise, not a change of direction.
The average rose from 860 to 946.7 thousand SSP between March and June, roughly 30 thousand SSP a month.
Recommendation
A simple forecast for July is about 975–1,000 thousand SSP (the latest average plus recent growth), presented as a range and checked against actual July sales to improve the method.
Practice activity
Calculate moving averages for each branch and describe their trends.
Expected result: Correct moving averages and a clear description of each trend.
Check your understanding
-
What does a moving average do?
Show answer
Smooths short-term ups and downs to show the trend.
-
What is seasonality?
Show answer
A pattern that repeats at regular intervals, such as each year.
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