I have some SKUs and I'd like to do a forecast using single exponential smoothing as a forecasting method, when should we go for small value of alpha (.05,.1,…) and when for bigger values(.8,.9,…)? Does it depend on the characteristics of the series?
Solved – Smoothing constant in single exponential smoothing
exponential-smoothingforecasting
Best Answer
The data will tell you what coefficient is appropriate for your assumed model. The SES model is just one model from an infinite set of models. Just simply estimate the optimal coefficient for that model. This will be sufficient IFF this is the best ARIMA model AND IFF there are no outliers/inliers/pulses AND no level/step shifts AND no Seasonal Pulses AND no Local Time Trends AND the parameter is constant over time and the error variance is constant over time. IFF all of these are true you should be good to go !