{"id":12465,"date":"2012-03-04T05:00:10","date_gmt":"2012-03-04T10:00:10","guid":{"rendered":"http:\/\/club.ino.com\/trading\/?p=12465"},"modified":"2012-03-02T15:07:14","modified_gmt":"2012-03-02T20:07:14","slug":"200-day-moving-average","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2012\/03\/200-day-moving-average\/","title":{"rendered":"3 ways to the use the 200 day moving average"},"content":{"rendered":"

\"\"Today we welcome Michele Schneider to the Trader's Blog. Michele is going to share with you how she uses the 200 day moving average to trade. Michele \"Mish\" Schneider is the Director of Trading Education & Research for MarketGauge<\/a>. She provides in-depth trader training as the market analyst, writer and host of Mish's Market Minute, contributes to several online trading publications a series of trading strategy articles called Taking Stock, and serves as a regular contributor to MarketGauge's free newsletter Market Outlook.<\/p>\n

The 200 day moving average may be the granddaddy of moving averages. Simply put, a financial instrument that is trading above it is healthy; below it, anemic. The 200 day moving average measures the sentiment of the market on a longer term basis. This is where major players like pension plans and hedge funds need to look in order to move a large amount of stocks. I display it on all my workspaces proudly, formatted in emerald green and real thick so I can't help but notice.<\/p>\n

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Not only am I always interested in a stock, ETF or future's price movement in relation to the 200 day moving average - I also study the slope, the distance it is from price action, and its correlation to some other moving averages, particularly the 10 and 50 day. For instance, where the 50 in particular is in relation to the 200 day moving average determines the phase of the overall market, ETF, or financial instrument. Please refer to this article on trading phase changes<\/a>. We also have a swing trading course which covers ETFs and the 6 Phase Changes in depth and a tool called the ETF Monitor that tracks the phases learn more about these here<\/a>.<\/p>\n

Longer moving averages like the 200 lag. They tend not to predict price direction, but rather reflect current direction. Therefore, when you hear \"the trend is your friend,\" technically put it really means that the price over the last 200 days is indicating an upward trend, therefore look for buy opportunities; versus the price is below the last 200 days, therefore look for sell opportunities.<\/p>\n

Moving averages are also good indicators for support and resistance. Since so many traders and investors watch the 200 day, once a price point reaches, fails or holds it, the collective psychology creates an immediate impact. Over the longer term, even psychology won't sustain the price action as the collective group is fickle. But, for a short term play, it works out amazingly well.<\/p>\n

Furthermore, if the price of an instrument is far above or below the 200 day moving average, the reverse happens: a price way above could signal an overbought condition and way below - oversold.<\/p>\n

Let's examine 3 ways I use the 200 day moving average:<\/p>\n