Data Smoothing

AAA

DEFINITION of 'Data Smoothing'

The use of an algorithm to remove noise from a data set, allowing important patterns to stand out. Data smoothing can be done in a variety of different ways, including random, random walk, moving average, simple exponential, linear exponential and seasonal exponential smoothing. Data smoothing can be used to help predict trends, such as trends in securities prices.

INVESTOPEDIA EXPLAINS 'Data Smoothing'

The random walk model is commonly used to describe the behavior of financial instruments such as stocks. Some investors believe that there is no relationship between past movement in a security's price and its future movement. Random walk smoothing assumes that future data points will equal the last available data point plus a random variable. Technical and fundamental analysts disagree with this idea; they believe future movements can be extrapolated by examining past trends.



RELATED TERMS
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Data Warehousing

    The electronic storage of a large amount of information by a ...
  3. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  4. Data Mining

    A process used by companies to turn raw data into useful information. ...
  5. Random Walk Theory

    The theory that stock price changes have the same distribution ...
  6. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
Related Articles
  1. Technical Indicators

    What is the Dynamic Momentum Index formula and how is it calculated?

    See how Tushar Chande and Stanley Kroll changed the basic formula for the relative strength index (RSI) to create the dynamic momentum index.
  2. Active Trading Fundamentals

    Charting Your Way To Better Returns

    Learn about the powerful hybrid techniques that take advantage of both technical and fundamental analysis.
  3. Forex Education

    An Introduction To J-Charting

    Learn about a technical tool that's based on the view that markets are energetic systems.
  4. Active Trading

    Introduction To Stationary And Non-Stationary Processes

    What to know about stationary and non-stationary processes before you try to model or forecast.
  5. Fundamental Analysis

    Scenario Analysis Provides Glimpse Of Portfolio Potential

    This statistical method estimates how far a stock might fall in a worst-case scenario.
  6. Trading Strategies

    What are the best technical indicators to complement the Moving Average (MA)?

    Learn about some of the common confirmation tools and techniques that traders and analysts use in conjunction with moving average indicators.
  7. Technical Indicators

    What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical indicators on charts.
  8. Trading Strategies

    What are the best technical indicators to complement the Moving Average (MA)?

    Learn about some of the common confirmation tools and techniques that traders and analysts use in conjunction with moving average indicators.
  9. Trading Strategies

    What are the main disadvantages of using Fibonacci Retracements for trading strategies?

    Learn about the disadvantages inherent to the Fibonacci retracement, an indicator built on the Fibonacci sequence used in mathematics.
  10. Technical Indicators

    What are the main advantages of using the Exponential Moving Average (EMA)?

    Learn the important potential advantages of using an exponential moving average when trading, instead of a simple moving average.

You May Also Like

Hot Definitions
  1. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  2. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  3. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  4. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  5. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  6. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
Trading Center