Characteristics and Limitations of moving average
Characteristics of moving average
1) The more the number of periods in the moving average, the greater the smoothing effect.
2) Various moving averages produce various forecasts.
3) The more the randomness of data along with underlying trend being constant then the more the periods should be included in the moving averages.
Limitations of moving averages
1) Equal weighing along with disregard to how more recent data is more relevant.
2) Moving average ignores data outside the period of the average hence it does not fully utilize available data.
3) Where there is an underlying seasonal variation, forecasting along with unadjusted moving average can be misleading.