Exponential Smoothing of two period values

The formula weighs the average demand of the last 25 percent of the total number of calculation periods with the average demand for n number of periods. It uses the smoothing constant α which determines how strongly the forecast responds to changes in demand.

The values of 0.2 and 0.3 are reasonable smoothing constants. These values indicate that the current forecast should be adjusted to 20 to 30 percent for the error in the prior forecast.

For example, Exponential Smoothing with n = 4 and α = 0.3 and latest number of calculation periods = 1, which is used to calculate M.