Adaptive Smoothing

Tags: Glossary

A special type of exponential smoothing that takes the success of previous forecasts into account when setting a value of ALPHA for the next period. In this manner, periods that experienced high error will cause ALPHA to beset high and, thus, adjust quickly. When error is low, AS assumes the technique is doing well and sets ALP HA at a low level. This makes ES much more responsive to changes in the level of the data and less reactive to noise. The advantage to adaptive smoothing is that the decision of what value of ALPHA to use in exponential smoothing is eliminated. A disadvantage to adaptive smoothing is that trend and seasonality are ignored

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