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Technical Analysis is typically based on a few common assumptions such as:
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Property values tend to move in trends.
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History is generally repetitive but not exactly.
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Property trends tend to be quite stable, rather than volatile, unless there are
externally mitigating factors like a significant increase or reduction in demand.
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Trends can build momentum over time.
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| These common assumptions enable us to understand why measuring historic trends
can indicate the direction of future trends |
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1. What is a Moving Average (MA) and why is it important?
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A Moving Average is the measurement of the average capital growth rate for a suburb over a defined period (i.e. 2 periods or 4 periods etc). |
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Moving average measurements are typically used by technical traders in many asset classes (shares, futures etc) to 'smooth out' any value fluctuations and to consider the trend of value movements rather than the actual value movement. |
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By considering the MA trends we get some valuable insight into the optimum times to Buy or Sell property as follows: |
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BUY SIGNAL = When the short term Moving Average crosses OVER a longer term Moving Average. We call this an UPWARD Crossover and indicates short term strength in value growth so this is a strong BUY signal. |
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SELL SIGNAL = When the short term Moving Average crosses UNDER a longer term Moving Average. We call this a DOWNWARD Crossover and indicates short term weakness in value growth so this is a strong SELL signal. |
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2. Why does SuburbWatch use an Exponential Moving Average (EMA)?
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At SuburbWatch we use a specific type of Moving Average called an Exponential Moving Average (EMA). Whilst an MA calculates the average capital growth rate for a suburb over a defined period (i.e. 2 periods or 4 periods etc) the EMA places a higher
weighting on the latest data rather than calculating a simple MA. We use the EMA because we have found that more recent data is more relevant when forecasting value trends. |
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This tutorial analysis should be read in light of the other edutorials also available for you uniquely at www.SuburbWatch.co.nz |
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