5 ms·

Do you know of any good resources that explain why smoothing should be used? My intuition is that in your given example (stock prices) smoothing would probably

• time_to_smile 4y ago
  Smoothing is used to negate seasonal effects. Suppose you run a bar, and your busiest days in order are Friday, Saturday, Thursday, Sunday, Wednesday, Tuesday and Monday. Now you are the owner and you want to look at your foot traffic everyday to monitor the health of your business. However, from the ordering I've presented, this will almost never work trivially. Monday traffic will always be less than Sunday, does this mean every Monday you should be concerned about business? Of course not. However by averaging the last 7 days and looking at that each day, you are canceling out these seasonal effects because every single day of the week is accounted for in your measurement. If the 7 day moving average on Monday is less than Sunday you should be concerned because the average when calculated on Sunday included the pervious Monday. For your example, you use the smoothed data and a history of the original data to come up with an exact explanation of which days are the best. For example if you are a bar owner and you don't know which day is the best, you can take a 7 day moving average and subtract it from each day of actual observations. Then averages those differences grouped by day of week and you get an estimate for the day of week effect (you can also calculate standard deviation as well).