Data smoothing is a valuable statistical technique used to predict trends from a set of data by filtering out any underlying noise or variability. This allows the major patterns and direction of data to be more accurately represented, with outliers and sudden changes minimised. It is a popular technique used in many areas of finance, economics, machine learning, risk analysis and other data-driven decision making.

Data smoothing can be done using a variety of methods. The most basic method is the ‘random’ method which assumes that the data points are independent of each other, and thus each value can be taken on its own without considering any other values. This eliminates sudden changes in the data and replaces them with more moderate ones.

The use of moving averages is a second data smoothing technique, where the average value of a particular data point is calculated over a certain period of time. This allows for more stability and evenness in the data as any sudden changes are smoothened out. Moving averages are widely used in instances such as predicting market trends or smoothing out sales data.

Data smoothing is a useful application as it provides useful information from large datasets. Because of the filtering of information, it allows for easier data analysis and forecasting by simplifying the data presented. However, this filtering also results in information loss, where certain outliers and data points are excluded that may be more important than it first seems. This can lead to misinterpretation of the data and impaired decision making. As such, the choice of data smoothing method is highly dependent on the type of data available - it must be done in such a way that important data points are not excluded while noise is still filtered out.

Data smoothing is thus a powerful and widely used statistic technique. It must be used in the right context to ensure both accuracy and completeness of the data filtered. By recognizing the power and potential limitations of data smoothing, its users are better able to make clearer decisions and more accurate predictions.