The
moving average, or simple moving average, is a method which uses the a number
of observations, the interval period,
to calculate a simple average which then becomes the forecast for the next
period. For example, in a 3-month
moving average the 3 most recent observations are added and divided by 3 to
produce a forecast for period 4. The
term moving is based on the fact that when a new observation becomes available,
the new observation replaces the oldest in the 3-month averaging technique. Hence, the forecast for period 5 in our example
would be based on the actual data observations in periods 2, 4, and 4.