A moving average is a technique to get an overall idea of the trends in a data set; it is an avarage of any subset of numbers. The moving average is extremely useful for forecasting long-term trends. You can calculate it for any period of time. For example, if you have sales data for a twenty-year period, you can calculate a five-year moving average, a four-year moving average, a three-year moving average and so on. Stock market analysts will often use a 50 or 200 day moving average to help them see trends in the stock market and (hopefully) forecast where the stocks are headed.
An average represents the “middling” value of a set of numbers. The moving average is exactly the same, but the average is calculated several times for several subsets of data. For example, if you want a two-year moving average for a data set from 2000, 2001, 2002 and 2003 you would find averages for the subsets 2000/2001, 2001/2002 and 2002/2003. Moving averages are usually plotted and are best visualized.
The mean (average) sales for the first five years (2003-2007) is calculated by finding the mean from the first five years (i.e. adding the five sales totals and dividing by 5). This gives you the moving average for 2005 (the center year) = (4M + 6M + 5M + 8M + 9M) / 5 = 6.4M
| Year | Sales ($M) |
| 2003 | 4 |
| 2004 | 6 |
| 2005 | 5 |
| 2006 | 8 |
| 2007 | 9 |
Statistics Lessons Blog 