When you are first learning to measure stock market trends, it’s a good idea to get as much help as you can, without of course getting conflicting signals. One of the easiest ways to measure the stock market trends is by applying a 200 day moving average on your price charts. My making some simple observations regarding the 200 day moving average, you can get some good information in regards to where the stock you are analyzing stands in the overall stock market trends.


Moving averages are one of the most popular indicators that can be applied to a stock chart. All a moving average does is take the look back sum of a specific data field (usually the close) and then prints the average on the chart. It then connects these with a line. The look back period can vary, and will assist you in measuring different time frames of stock market trends.


The 200 day moving average is the most popular moving average in stock trading because of its ability to look at the bigger picture stock market trends. This moving average is watched by mutual and hedge funds, institutions, other traders and the media, even though many of the media will slam technical analysis as sorcery and hocus pocus. 200 is almost a year’s worth of trading, and there have been studies done that have concluded that there is an edge with looking for long trades when the stock is above its 200 day moving average, and looking for short trades when it’s below it. This is enough to qualify as a first component in a system that looks to exploit the stock market trends, but is certainly not enough to complete it.


The slope of the 200 day moving average can also give some clues as to the strength or weakness of the longer term stock market trend. A strongly upward sloping 200 day moving average is a sign that the long term stock market trends are pointing higher, while a down sloping 200 day moving average shows the bears are the boss of the longer term trend, and caution on the long side is warranted.


A flat 200 day moving average shows the long term stock market trends to have little momentum, and therefore no firm directional commitment. This doesn’t mean that you can’t take anymore trades, but you may want to adjust your holding period to a shorter one, while using different moving averages to determine the power and bias present in short and intermediate term stock market trends.