Question:
Is there a default/average/best quarter looking back ratio to use when using the moving averages #1 and #2? Depending on the length of time I look back will give me a different graph (green line/red line cross over). Is this true, where am I going wrong?
Answer:
The graphs **should** have different crossovers when using different MA periods, so you aren’t doing anything wrong.
After extensive back-testing, we found that if you had to pick just one set of MAs, the 10 & 20 MA is the best “overall” fit for most markets. That’s why it’s used on the Single-City template.
But there’s no reason to pick just one MA for ALL markets!
Some markets have a history of being faster moving (like San Diego) and you’d want to use shorter time frames. The way to tell is by seeing which combination of MA’s best predicted prior trend changes for that specific market. You can do that in the
Custom Charts tool.
However, more important than fine-tuning the MA **time period** is to look at all six or seven MA decision triggers, not just the “crossover.” These multiple decision triggers are explained in the ” Housing Alerts Classic Videos” titled “Custom Charts Overview” (starting around the 8:00 minute mark).
In volatile markets such as these, using ONLY the crossover can leave a lot of money on the table. There’s only so much you can cover in a 1-hour webcast, and the crossover is an easy indicator to follow… but it’s only one of six.
There are other advanced TA tools that we will be adding soon that will help make these fine points even more visually obvious!
Last update of the article: 05/08/2020.
