The 50-day moving average (MA), is one of the most popular technical indicators for price movements. It is used commonly by traders to determine support and resistance levels for stocks. It is a reliable and accurate trend indicator.
This average can be used to analyze price movements without the noises from daily price changes. The purple line is shown in the chart. It's the average of closing prices for stocks over the past 50 trading day or ten weeks. It is a line that shows the direction of price movements when it is plotted on a stock price chart. It can be expected that prices will have increased incrementally if it displays an upward trend. If it displays a downward trend, prices may have fallen.
Simply add up the closing prices for the last ten week (day 1+day 2,+day 3...day N) and divide that sum by the number of days, which is 50. Simple moving averages are very popular. You can get a longer-term picture of how prices have changed by simply adding more days or periods to the closing prices. You can calculate a 200-day average by simply adding the closing prices for 200 days to the equation and then dividing them by 200.
This average is an easy, reliable and solid indicator of price trends. This average is very popular, and it can be difficult to violate for smaller price movements. It provides more market indicators when combined with a long-term moving average.
This type of average is also used by traders as a benchmark for support or resistance. It provides a historical view of price movement, but also shows the prices that investors have purchased and sold assets for over the past ten weeks. It displays the price trend and range.
Daily trades often respect the points of support or resistance along the 50-day lines. These points are difficult to breach and prices tend to bounce off of the support levels or pull back towards the MA line's resistance levels. It offers traders a great entry point and exit point, with less risk.
This moving average is used by investors to determine the support level. Investors buy stocks when stock prices are in the demand zone. A demand zone is when prices pull back below the support level. The prices rise as more buyers enter this zone. This is a support level that can be realistically viewed as a moving average for 50 days.
Stop orders are placed by traders to shorten securities when they begin to fall on entering the supply area or by sufficient buying force, surpass the moving average of 50 days. This average coincides with the upper ceiling of supply zone. You need sufficient purchasing power to break the resistance levels. This makes it an acceptable level of resistance for exit trades, since the 50-day MAs often coincide with the highest stock trading range.
This average can also be used to gauge the stock's health. If the stock price forms a cup, and it is trailing above or below the MA, this indicates that the stock's fundamentals are strong and has maintained the buying power. If the bullish upward trend is sustained, prices will continue to trail the 50-day MA. If prices fall below the average, it is a sign that there has been a trend change into a bearish mood.
Because it applies the price principle, a simple moving average such as this one is reliable for placing entry points and exit points. A good moving average is one that does not reflect a price level that is frequently exceeded. Because of the length and range of prices, it is difficult to break the 50-day MA. It is unlikely that minor discrepancies could cause a breach or support level, which will avoid giving off false market signals.
Simple is a 50-day moving average strategy. You can either buy or sell a stock if prices reach the average support level and bounce back. If the average resistance is reached and prices fall, you may want to sell or shorten the stock before it falls further. It may take a lot more buying interest to get prices above the 50-day moving average.
If prices rise above the 50-day MA in the direction of breakout, you can enter a trade. If there is an uptrend you can buy at breakout levels, and then short it when prices reach their peak. It usually takes time for the trend to reverse from where it started. To minimize potential losses, you can set a stop-loss in the opposite direction. This is useful in the event that prices fall due to an unforeseen event such as the release of financial information or government data.
How long should you keep this trade open? Traders suggest that you hold the trade until the price moves in the opposite direction to your trade. If you were long, wait until the price moves in your favor and then cross over to an upward swing.
This 50-day moving mean is combined with a 200 day moving average by traders to determine if a stock is bullish. A stock is considered a Golden Cross if its short-term moving mean crosses the long-term average (e.g. a 200-day one). This is a sign of a bullish shift in sentiment. This means that the shorter-term MA has risen faster than the long-term moving average. This is because stocks are breaking the support levels for long-term MAs in order to make new highs.