Forecasting using the periodic cycles

Linear trend, covered in the recipe Forecasting using the linear regression, is just an overview of how the business is going. The regression line serves us merely as an indicator of where we will be in the future if everything continues the same. What it doesn't tell us, at least not well enough, is what the individual values on that path will be. The values that method returns are too simplified, too imprecise.

Of course, there are other ways of forecasting the future values, i.e. using polynomial curves or similar, which, generally speaking, will fit better to the shape of achieved business values and therefore represent future values more precisely. However, we won't make an example using them; we will use something simple but effective as well.

The characteristic of many businesses is that events tend to repeat themselves after some time. In other words, many of them have a cyclic behavior whether that period is a year, a month, a week, a day, or...