Learn how to use the 200-day moving average properly using these three practical and straightforward rules for success.
Now is an excellent time to set up a basic stock chart to allow you to view the stock market’s long-term direction and create a trading rule.
This example will help you understand where the market is, the likely direction, and how to replicate the same setup for today.
Stock Chart Setup
You can use any charting package to achieve this goal. We recommend TradingView, TC2000, or MetaStock in our Best Stock Charting Software Review.
- Select a weekly stock chart; 5 days per bar
- Select your favorite index; S&P500 or Nasdaq 100
- Add a Simple Moving Average (SMA) Indicator
- Set the Moving Average Indicator to 40; we do this if the chart is weekly, meaning the 40-bar moving average of five days per bar equals the 200-day moving average.
- We can refer to this as the Moving Average of 40 on a weekly chart.
The 200-Day Moving Average Is The Most Predictive Indicator of All.
3 Simple Rules for the 200-Day Moving Average
Use these rules to enable you to understand the 40 Bar Moving Average.
- When the price on the chart is above the 40 bar moving average, the index is in an up-trend (see the green boxes below)
- When the price fluctuates on or around the moving average, it is in a sideways consolidation.
- When the price is clearly below the 40 bar moving average, the index is, of course in a down trend (see the red boxes)
So what is the rule to use to interpret this chart?
Ask yourself this question. On a weekly chart, do you really what to be investing long (expecting price rises) when the price is below the 40 bar moving average (the RED BOXES)
Stock Market Investing (BONUS) Rule For Medium / Longer Term Traders
When the Price Pattern of the Index breaks down through the 40 bar moving average = Bearish = Sell = Go Short.
When the Price Patter of the Index breaks out above the 40 bar moving average = Bullish = Buy = Go Long.
where can i secure a really long term charting of the dji or s&p 500 with the 50 and 200 MA superimposed as far as 1929 if possible. thanks.
You have got a real gift writing. Totally enjoyed this
Yes 200 Days Moving Averages is really helpful for the technical analysts. The crossover of the moving averages is also helpful and can get idea regarding the trend of the market. 50 Days Moving Average crossover or cross down to 200 Days Moving Average can also give idea regarding the trend but one needs to cross check the trend with other indicators too. Nice post.