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What is seasonality in forecasting and how do I handle it?
Seasonality is a repeating pattern tied to the calendar, such as higher sales every December, busier weekends or a quieter winter. Handle it by using a method that models the repeating cycle, such as seasonal naive, Holt-Winters, or a model with day, week and month features, and make sure you have at least two full cycles of history.
There can be several layers at once: day of week, month, and year. Hourly foot traffic shows daily and weekly cycles, while ice cream sales show a yearly one.
Tips:
- Plot the data by period and look before modelling.
- Check whether seasonal swings grow with the level of sales, which suggests a multiplicative pattern.
- Do not confuse seasonality with one-off events.
- Moving holidays such as Easter and Ramadan need explicit handling.
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