200 dma or 200 day moving average: Stock Trading Part Ten reviews the 200 dma or 200 day moving average and the importance in using as a signal major changes in the stock price or stock exchange index direction.
200 dma: The 200 day moving average can be one of the most important indicators that an investor can use to help identify major long term changes in direction of the stock exchange indices or the stock market or movement of an individual stock. The 200 dma or 200 day moving average is a technical indicator rather than a fundamental indicator. The 200 dma or 200 day moving average is as shown on most charts is a average of the closing price of the stock price or stock market index over a 200 dma or 200 day moving average period and represents a long term trend of the stock market index or stock price.
For example, a 3 day moving average would ad together the closing stock price of the three previous close prices and divide by three to determine the moving average price. If stock abc closes at 10 on day 1, 12 on day 2, and 14 on day three then the moving average would be 10+12+14 divided by 3 or 12.
Technical Analysis uses indicators such as the 200 dma or 200 day moving average of stock market index charts to determine whether a trend is in place, is forming new and used to forecast future movements of the stock market or stock price for a determination by a investor whether to purchase or sell investments.
Fundamental Analysis uses indicators to determine whether their is underlying value to the stock. For example a fundamental analysis might examine the stock price times the number of outstanding shares relative to the net worth of the company for a determination of whether to purchase or sell a stock.
The 200 dma or 200 day moving average has proved to be a successful tool to avoid long term losses in the stock market. Investors using a technique of selling out of stock portfolios when the major stock market index moves below the 200 dma or 200 day moving average would have avoided major losses in the past bear markets. For example, although the technique would not have avoided the March 2000 sell-off of the Nasdaq stock exchange, however, the strategy would have taken investors out of the Nasdaq market very early in September 2000 avoiding 24 more months of agonizing losses that ultimately delivered 77% drop from the Nasdaq stock market peak from March of 2000. Investors would have also avoided the 1929 stock market crash and the 1987 crash using this technique.
200 dma: 200 day moving average: Stock Trading Key Terms defined:
200 dma: 200 day moving average: An average price of a stock market index or stock price over a long period of time which shows the general time of the stock.
Technical Analysis: Using technical indicators such as stock charts to make forecasts of the future movement of stocks..
200 dma or 200 day moving average: Stock Trading Part Ten Quiz:
Answers to Stock Trading Part Nine Quiz, 1.a, 2.a, 3.a
Answers for Stock Trading Part Ten Quiz found in Stock Trading Part Eleven
Stock Trading continued: Click here to continue with Part Eleven a full circle view of the stock trading
The chart above shows the 200 day moving average between the period of 1929 and 1937. The Bear Market spent the vast majority of time late in the year in 1929 and mid 1932. A very long two and one half years that caused anyone that was long on stocks to absolutely lose money.
The chart above is a stock market chart of the 200 dma during the period of 1933 to 1938. Note how the blue arrows indicate the market found support on the yellow line or 200 dma.
The above stock market chart shows the dow jones industrial average between 1941 and 1946. Note how the stock market finds support on the 200 day moving average.
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