200-Day Moving Average

February 5, 2013 12:24PM CST

A commodity that is trading below its 200-day moving average is in a long-term downtrend. The commodity is generally considered as unhealthy, until it breaks out above its 200-day moving average. Some traders like to buy when its 50-day moving average crosses above its 200-day moving average.

A commodity that is trading above its 200-day moving average is in a long-term uptrend. This is considered to be a healthy indication. A healthy stock will generally have a rising 200-day moving average. When its 50-day moving average crosses below its 200-day moving average, it is called a Death Cross.

The 200-day moving average often works as a major support level in a bull market. This can present a low-risk opportunity to buy a commodity, however a break below it can lead to a large gap downward. In a bear market, the 200-day moving average often works as a major resistance level; however a break above it can lead to a sharp rise.

In a bull market, a buying signal may be generated as the commodity dips close to the 200-day moving average and a sell signal may be generated when it goes far above its 200-day moving average. In a bear market, a buying signal may be generated when it dips far below its 200-day moving average, and a sell signal may be generated when it rises close to its 200-day moving average. However, the opposite signals may be generated on strong breakthroughs of the 200-day moving average.



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