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In the exponential smoothing, the closer alpha is to 1, the greater the reaction to the most recent demand.

What is exponential smoothing?

Exponential smoothing is a way to smooth out data for the presentations or to make forecasts. It’s usually used for the finance and economics. If you have a time series with a clear pattern, you could use moving averages — but if you don’t have a clear pattern you can use the exponential smoothing to forecast.

Damping Factors

Perhaps one of the most confusing aspects of the exponential smoothing is the damping factor. Damping factors are used to smooth out graph and take on a value between 0 and 1. Technically, damping factor is 1 minus the alpha level (1 – α). But all you really need to know is the smaller alpha levels (i.e. larger damping factors), smooths out peaks and valleys more than larger alpha levels (smaller damping factors). Smaller damping factors also mean that your smoothed values are closer to actual data points than larger damping factors.

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