What is the 200 dma?
The 200 dma is the average closing price of a tradeable security over a 200 day period. The 200 dma is commonly plotted on a stock chart and used by stock market technicians to make predictions of potential price trends
- For example, a 3 day moving average would add 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
14 on day 3
The moving average would be calculated by adding 10+12+14 together and then dividing by 3 for a resulting value of 12. The three day moving average would be 12
The Chart below shows the Dow Jones Industrial Average from October 1928 to October 1937. The green line on the chart is the 200 dma or the 200 day mvoing average. In late 1929 the Dow Jones Industrial Average moved below the 200 day moving average prior to the great stock market crash of 1929.
- Stock Market investors could have avoided major losses by exiting stock positions when the DJIA moved below the 200 dma during the major stock market crashes of 1929