Which is a 200 day moving average
The 200-day moving average is a technical an indicator used to analyze and identify long-term trends. In principle, this is the line that represents the average closing price of the last 200 days and can be applied to any security.
200 the daily moving average is widely used by forex traders as it is considered a good indicator of a long-term trend foreign exchange market. If the price is constantly trading above the 200-day moving average, it can be seen as a trend market. Markets that are consistently trading below the 200-day moving average are on a downward trend.
How to calculate a 200-day moving average?
The 200-day moving average can be calculated by adding the closing prices of the last 200 days and then dividing by 200.
200 – day moving average formula [(Day 1 + Day 2 …. + Day 200)/200]
Each new day creates a new data point. Connecting all data points each day results in a solid line that can be tracked on graphs.
How do you use the 200 moving average in your trading strategy?
The 200-day moving average has gained popularity because it can be used in many different ways to help traders.
Using 200 Day MA as Sup and Rexistence
The 200-day moving average can be used to identify key foreign exchange market levels that have been adhered to in the past. Often, the price in the foreign exchange market approaches the 200-day moving average and continues in the current direction trend. Therefore, the 200-day moving average can be seen as dynamic support or resistance.
Below is an example of how the price approached and bounced back to a 200-day moving average EUR / USD chart:
According to traders, this will go as long as the price collides with the 200-day moving average, when the market is on an upward trend. Similarly, traders look for short entries after prices fall below the 200-day moving average in a trend market. Stops can be placed upwards (downward trend) below 200 moving averages (upwards).
Once a long-term trend is identified, traders often assess the strength of the trend. This is important because a weakening trend can signal a reversal of the trend and provide an ideal time to exit existing trade.
The inclusion of shorter-term moving averages, such as 21-, 55- and 100-day moving averages, allows traders to determine whether an existing trend is coming to an end as they monitor newer price movements over a shorter period of time.
The GBP / USD The chart below shows how smaller, faster moving averages indicate that the uptrend may be reversing. The 21-day (green) moving average exceeds the 55-day (black) moving average and continues to exceed the 100 (blue) and 200 (red) daily averages. These are all decline signals that appear before the 200-day moving average shows a decline signal.
Using a 200-day moving average a Trend filter
One of the simplest strategies to add to a 200-day moving average is to look at the market against a 200-day moving average. Traders usually do this to analyze the general trend of the market and then only look for deals towards a long-term trend.
In NZD / USD according to the chart below, the market trades over a 200-day moving average over a long period of time. This means that the market is moving upwards and therefore traders should only look for long market entries. The example below uses stochastic oscillator however, traders should use an indicator or other entry criteria they are familiar with.
200-day moving average: summary
- The 200-day moving average is a widely acquired indicator that shows the direction of a long-term trend in any market.
- Due to mass deployment, a 200-day moving average can often be considered self-fulfillment.
- Traders use the 200-day moving average to filter trades towards the long-term trend and look for the 200-day moving average to report trades.
Become a better trader with our trading tips
- The 200-day moving average is just one of many useful indicators. Expand your trading knowledge by reading our article on the most popular technical specifications
- If you are just starting your trading journey, it is important to understand the basics of Forex trading in our free nto the new forex trading guide.
- Moving averages are trend indicators. Other trend indicators include Ichimoku cloud, Average direction index. Alternatively, trends can be identified trend lines.