50- and 200-day moving averages: how to read the trend
A moving average is the average closing price over the last N days. Price above the 50- and 200-day averages means an uptrend; below both, a downtrend. The 50-day crossing above the 200-day is called a «golden cross», crossing below a «death cross».
The 50-day shows the trend of a few months, the 200-day the trend of the year. Large funds often buy strong stocks on pullbacks to the 50-day.
The cleanest uptrend is price above the 50-day, the 50-day above the 150-day and that above the 200-day. It is a classic first screening filter.
A close below the 50-day on heavy volume is a warning: corrections often start that way. Many investors do not hold stocks below the 200-day at all.
- Of the 2093 most traded US stocks, 1020 (49%) are above their 200-day average
- In the ideal order «price > 50 > 150 > 200»: 395
FAQ
Simple or exponential average?
The exponential average (EMA) reacts faster to recent prices; the simple one (SMA) is smoother. For 200 days the simple one is more common.
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