The 200-day moving average is a long-term average used by traders to understand how a stock or fund has performed. It helps show “big trends” and smooths out small fluctuations. Different types of moving averages deliver data in different ways, and finance professionals look for uptrends, downtrends, and crossovers. Learning more about moving averages can help traders make smarter trades.
The 200-day moving average is a measure of how much a stock or fund has changed over a 200-day period. Traders and others use moving averages to better understand how a stock or fund has performed. The 200-day average is a long-term average, where professionals commonly use shorter averages such as a 10- or 15-day moving average to examine short-term trends. Long-term trend analysis can be well served by a 200-day moving average.
In general, the moving average helps show “big trends,” where stocks or other actions are vulnerable to many small daily changes. A simple way to explain a moving average is that it “smooths out” any small fluctuations to reveal a larger, more substantial move over time. Investors benefit from this type of analysis, sometimes called “technical analysis,” when deciding what position to take (how much to buy or sell) on a stock or fund.
Investors who do technical analysis and look at a 200-day moving average could use visual tools such as candlestick charts. The candlestick chart is a visual way to show trends, as the chart has a “wick” that shows upward or downward movement during a trading day depending on the color. Investors can take all of these wicks and turn them into a moving average that makes sense for a stock or financial product.
Different types of moving averages help deliver data in different ways. A “simple moving average” takes just the linear average of daily prices. A “linear moving average” applies more complicated analysis and calculations, as does an “exponential average,” which places more emphasis on trades and prices that have occurred more recently.
Finance professionals who evaluate moving averages look for “uptrends” and “downtrends” for a product. They also look for “crossovers” where the price interacts with the moving average. Investors can get updates from professional analysts that mention crossovers and other events and draw conclusions about likely future stock prices based on what they’ve discovered about past price movements. Using a 200-day moving average, for example, may include several points where analysts may deem a stock “overvalued” or “undervalued” relative to the moving average taking into account other factors involved in the price.
Learning more about a moving average and other types of analysis can enable a trader to make smarter trades. Because of the inherent volatility and risk involved in most types of stock trading, skilled analysis is needed to help predict future prices. Sometimes, this investigation takes the place of the simpler calculations involved in more conservative investment opportunities.
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