Under this condition, the best prediction for the next value in a series is simply the average of all previous data points. A random walk exists if the next data point is equal to the last data point plus some random deviation. Many financial securities move in this manner. Under this condition, the best prediction for the next value in a series is simply the last value. This method works well if the data contains no trend or cyclic pattern.
Higher values cause greater smoothing.
This method works well if the data contains a trend but no cyclic pattern. This method works well if the data contains a trend and a cyclic pattern. Copyright 2000, Vanguard Software Corporation. All rights reserved.