What is the 200-Day Moving Average?

In major corrections—and even bear markets—the 200-day moving average can be the most valuable moving average of all. 

To understand the 200-day moving average, it’s important to know what, exactly, a moving average is. Moving averages smooth the fluctuations in a stock’s price. To get a moving average, you simply add up all the closing prices for a stock over a certain period (say, 200 days) and then divide by the time (200). You will get the average price at which the stock has closed over that time. Do this calculation every day for the previous 200 days, and that’s how you get the ‘moving’ part.

It’s more common to look at the moving average over 50 days because it’s long enough to allow for corrections but not so long that the trend hasn’t turned down by the time the stock touches it. But there’s an even better reason: great growth stocks tend to find support (meaning that they stop declining) when they reach this moving average. Buying a stock as it’s bouncing off this moving average is often a good strategy. 

That said, there’s no perfect way to use moving averages to your advantage—heck, there’s nothing special or sacrosanct about the 25-, 50- or 200-day moving average. On the buy side, however, moving averages are an easy way to eliminate those tempting story stocks that really aren’t performing. Our chief analyst Mike Cintolo s NEVER bought a stock that’s trading below its 200-day moving average, and has rarely bought one below its 50-day line. 

To learn more, download our FREE report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons. 

Technical analysis of stock trends helps investors determine how the markets in general, and their stocks in particular, are likely to behave going forward.