Identify trends with the 200-day moving average
The 200-day moving average is mainly used by traders to identify buy and sell signals – according to the motto “the trend is your friend”. When the current price of a stock or index climbs above the 200-day moving average, it is in an uptrend. In this case, the moving average acts as a resistance line. Investors assume that the price will continue to rise, so the stock or index should be bought at this pointto make a profit.
The reverse is true when the current price is trading below the 200-day moving average. The development is evaluated as a downtrend and the moving average represents the support line. It is assumed that prices will continue to fall – investors should sell accordingly and take their winnings with them.
When the price crosses the 200-day moving average, this is to be interpreted as a change in trend and investors should check the buy or sell signal. The trading costs must always be taken into account. Costs of buying and selling should never eat up profits.
Caution: Since the rule is very well known and used by many traders, it can also lead to false signals. For example, it can happen that a course is only listed above the 200-day line for a short time and then falls again. In order to get a better overall picture, other instruments should also be used in the analysis.