Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.

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Exponential Smoothing
This example teaches you how to apply exponential smoothing to a time series in Excel. Exponential smoothing is
Chapter
used to smooth out irregularities (peaks and valleys) to easily recognize trends.

1. First, let's take a look at our time series. Analysis ToolPak

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Histogram

Descriptive Statistics

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t-Test

Moving Average

Exponential Smoothing

Correlation

Regression

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Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.html

exponential-smoothing.xls

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2. On the Data tab, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.

3. Select Exponential Smoothing and click OK.

4. Click in the Input Range box and select the range B2:M2.

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Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.html

5. Click in the Damping factor box and type 0.9. Literature often talks about the smoothing constant α (alpha). The
value (1- α) is called the damping factor.

6. Click in the Output Range box and select cell B3.

7. Click OK.

8. Plot a graph of these values.

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Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.html

Explanation: because we set alpha to 0.1, the previous data point is given a relatively small weight while the
previous smoothed value is given a large weight (i.e. 0.9). As a result, peaks and valleys are smoothed out. The
graph shows an increasing trend. Excel cannot calculate the smoothed value for the first data point because there
is no previous data point. The smoothed value for the second data point equals the previous data point.

9. Repeat steps 2 to 8 for alpha = 0.3 and alpha = 0.8.

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Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.html

Conclusion: The smaller alpha (larger the damping factor), the more the peaks and valleys are smoothed out. The
larger alpha (smaller the damping factor), the closer the smoothed values are to the actual data points.

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Exponential Smoothing in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/exponential-smoothing.html

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