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Why is the 200-Day Simple Moving Average Considered Important?
Determine the overall long-term trend of a security
The 200-Day Simple Moving Average (SMA) is considered one of the key technical indicators in the world of finance for determining the overall long-term trend of a security. Whether you are looking at a stock such as Apple or a cryptocurrency such as Bitcoin, the 200-Day SMA can help you determine its long-term trend.
The 200-Day SMA represents approximately 40 weeks of trading for a security. If a security’s price has been trending above its 200-Day SMA, that means it has been in a general uptrend. On the flip side, if a security’s price has been trending below its 200-Day SMA, that means that it has been in a general downtrend.
Courtesy of Yahoo Finance, the below one-year daily chart showcases Bitcoin trending above its 200-Day SMA, which means Bitcoin is in a general uptrend:
Since the 200-Day SMA is a long-term focused moving average, it is often used in conjunction with a shorter-term moving average such as the 50-Day SMA to further assess the trend of a security in a shorter time period. The 200-Day SMA can also be combined with other indicators such as Fibonacci Retracement Levels and Volume Profile to further assist you in determining your entry price of a security you are looking to buy for the long-term. The 200-Day SMA helps to create the basis for your technical analysis.
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