moving average

Definition

Mean of time series data (observations equally spaced in time) from several consecutive periods. Called 'moving' because it is continually recomputed as new data becomes available, it progresses by dropping the earliest value and adding the latest value. For example, the moving average of six-month sales may be computed by taking the average of sales from January to June, then the average of sales from February to July, then of March to August, and so on. Moving averages (1) reduce the effect of temporary variations in data, (2) improve the 'fit' of data to a line (a process called 'smoothing') to show the data's trend more clearly, and (3) highlight any value above or below the trend.