A popular moving average that technical traders love to trade on the daily chart is the moving average 200. Though, I do not often rely on the moving average 200, it deserves more respect.
Let's find out more about what the moving 200 can do for a technical trader.
Moving Average 200 Explained
It is the average of the last two-hundreds closing price on a specific time frame. One can plot the moving average 200 on any time frame. One does not have to calculate it because most charting software do have it.
Some trading software allow traders to plot MA 200 of the closing price, open price, midpoint, high and low. It does not matter because using the closing price does work fine. One can use the exponential or simple MA 200. Both work just fine.
Moving average 200 And MA 50 Crossover
The most popular moving averages crossover is MA 200 and MA 50 on the daily chart.
Though, one can use that crossover on any time frame, it is mostly use on the daily chart. The death cross is when the daily MA 50 dips below MA 200, it is a warning that a bearish trend is brewing.
It does not mean just sell, but look out for bearish trade setups and be ready to use a top-down trading method if it is a high probability bearish trade setup. When the daily MA 50 rises above MA 200, a daily bullish trend may start (but not guaranteed). That is called the golden cross (crossover).
The MA 200 and MA 50 crossover can be used on every time frame, but I like it also on 5M, 1H and 2H for day trading setups. After the crossover, it is better to buy above or below the MA 50.
The Magic Of MA 50 and MA 200
I know that many will quickly dismiss what I am about to say because it is not a common teaching on the web. If one is using the crossover MA 50 and MA 200, one is actually tracking the MA 150 because the difference between 200 and 50 is 150.
So, when MA 50 is above MA 200, it is highlighting that MA 150 is strengthening. Of course, the opposite is also true. The general rule is that a trader that is using MA X and MA Y crossover is really tracking the MA (Y-X) when Y is greater than X.
Warning One that is using a moving average must always pay attention to the slope of the moving average. A moving average can be sloping up, down or horizontal (neutral).
In the case of a bullish crossover, look for bullish trading setups after the crossover. Do not buy only because of the crossover. On the contrary, look for high probability bearish trade setups after a bearish crossover. Remember to follow the trading drill (setup, signal and entry).
The golden cross highlights the bullish crossover (MA50 and MA200 daily chart) and death cross points to the bearish crossover on the daily chart.
The moving average 200 can help to spot the long term trend on the daily chart if one combines it with the moving average fifty.
One that is using the moving average 200 crossover must also draw channel, trend lines and pitchfork tools. If a bullish trend is truly in place, the price will continue to display higher lows and highs. Therefore, it is not sufficient to only have a bullish crossover if one wants to buy. The opposite is also true for the bearish crossover. Note that the best time frame for the MA 200 is the daily chart.
That is it friends. I hope you like this article as much as I enjoy writing it. If you find it helpful, please share and bookmark it. I will really appreciate it. Please do not hesitate to post your relevant comments and questions at 24stocktrader YouTube channel and I will get back to you.