The art of using the 50-day and 200-day moving average to your advantage

One of the most commonly used indicators in technical analysis is the moving average (MA). A stock’s moving average is calculated to help smooth out the price data by creating an average price that is constantly being updated.

Using the moving average, short-term fluctuations in a stock’s price can be minimized over a specific time period. This article outlines the concept of 50 day and 200 day moving average in detail.

What the 50 day and 200 day moving average looks like

The 50-day moving average is represented by a light baby blue color and the zone around it is blue. This is the primary moving average that we use. Keep in mind that it is a zone.

The 200-day moving average is represented by a white line

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Significance of the 50 day and 200 day moving average
Where the MA is pointing actually determines the direction of the momentum.

A clock analogy: The MA pointing at 1 and 2 o’clock denotes an upward momentum. In case the MA is pointing at 4 o’clock and 5 o’clock, this indicates a downward momentum.

A shift in momentum occurs when MAs intersect. When the price moves away from the moving average, so do the moving averages from each other. Prices tend to retrace better when they are farther from their moving averages (MAs).

The formation of a W
Whenever a W is formed, it is either above or below the 50-day moving average.

Best time to pay attention to the market
It’s time to pay attention to the market when the price goes away from the 50-day moving average and not if it’s been on the 50 MA for a lengthy period of time.

Price movements away from the 50-day moving average are noteworthy because at some time, the price must return to the 50-day MA.

Blue & Purple Candles
The color of the candles is something to keep in mind. The blue and purple candles indicate above-average buy and sell volume, respectively.

The Formation of a W
A W formation is typically witnessed underneath or on the 50 day MA. Also bear in mind that a candle must close above or below the MA in order to generate upward or downward momentum, respectively.

 

Leverage Trading
In case of leverage trading, price must always close above  the 50 day average for a long or below the 50 day average for a short position to be established.

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Disclaimer

 

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