As part of a risk management system all lumber users should understand the various lumber markets and the various ways to understand and interpret them. The more you understand the more you will see trends and patterns that can help you and your organization. One of those tools is called “Moving Averages”.
In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. … For example, it is often used in technical analysis of financial data, like stock prices, returns or trading volumes.
There are many types of moving averages. For example the average price over the last 10 weeks or 20 weeks or 30 weeks, etc. You could look at the average % increase in the month of January for the last 10 years, 20 years, 30 years. You can practically do any series of data but the key is to not only use the most recent but to average it over a period of time or a series of events. When you average it out, it will smooth the data and make it more realistic. These can also get very complex but for the sake of this article, we will keep it simple.
When it comes to Lumber, Sherwood Lumber uses 4 key measurements which are listed below. With these 4 we are able to identify trends and patterns that help us buy for our customers at the right times.
- 4 week Moving Average
- 6 week Moving Average
- 8 week Moving Average
- 13 week Moving Average
To learn more about Sherwood Lumber risk management please visit our risk management site By clicking here