A Tutorial on Exponential Forecasting and Smoothing in Excel

Exponential smoothing is a financial technique that uses moving averages to remove peaks and valleys from a set of financial data.

Things You'll Need

• PC running Microsoft Excel

Instructions

Build a Model in Excel to Exponentially Smooth Data

1. Open a blank Excel worksheet. Do this by double-clicking on the Excel icon on the PC's desktop screen. Click "File" on the toolbar, and scroll down to "New." Double-click and a blank worksheet will open.

2. Enter data, such as stock prices, into cells A1 to A25.

3. Click on "Tools" in the Toolbar, and scroll down to "Add-Ins."

4. Check the "Analysis ToolPak" box.

5. Click on "Tools" again and scroll down to "Data Analysis."

6. Scroll down to "Exponential Smoothing" and click "OK."

7. Click in the "Input Range" box, and highlight cells A1 to A25.

8. In the "Damping Factor" box, enter your desired damping factor. The higher the damping factor, the smoother, or flatter, the data will be. The most commonly used values are 0.2 or 0.3.

9. Click in the "Output Range" box, and click into cell B1 in the spreadsheet. Click "OK."

10. Review the results produced in column B.

References

• Microsoft Excel Online Help
• The Engineering Statistics Handbook