The 50 Day Moving Average - How To Use It
The 50 day moving average is a very popular moving average that is watched by many traders. You can use it as a subjective support or resistance and also to determine the health of a stock. For those who are new, the 50 day moving average is just the average price of a stock for the last 50 days. It is calculated every day and your charting software will plot it as a line of your chart. The 50 day moving average together with the 200 day moving average are two very popular moving average watched by many traders and investors. To learn about the 200 day moving average read How To Use The 200 Day Moving Average To Trade Stocks.
You can use the 50 day moving average as:
You can use the 50 day moving average as:
- A subjective support and resistance
- To determine the health of a stock
- The slope of the 50 MA determines the trend of a stock
- Combine it with a shorter moving average to form a trading signal
Using the 50 day moving average as subjective support and resistance
There is something very special about the 50 day moving average. While it is not an actual support or resistance, the 50 day moving average is popular enough that stocks tend to halt their rise or drop when they touch the 50 day moving average. At times the area where the 50 day moving average meets the price coincides with past price congestion which actually acts as a support or resistance.
While the 50 day moving average support and resistance does not work always, it works often enough that any investor or trader should take note of it when their stock touches the 50 day moving average.
While the 50 day moving average support and resistance does not work always, it works often enough that any investor or trader should take note of it when their stock touches the 50 day moving average.
In the chart above, you can see how BK found support at its 50 day moving average twice. The first time, the stock rallied and had a huge gain when it touched its 50 day moving average. At the second time, the stock was rising but the result of the BREXIT vote made BK and many other stocks gap down. As with all indicators, this proves that the 50 day moving average does not work all the time.
The chart of BMY shows how the stock found support twice. Both times, the stock had a successful rally. If you had bought the stock as it reaches the 50 day moving average, you would have made some profits. There are many traders who trade the 50 day moving average support and you can learn about this trading strategy by going to The 50 MA Support Trading Strategy.
In the chart above, you can see how FOX encountered resistance when it touched its 50 day moving average in July 2016. The stock drop from there.
There is no indicator that works 100% of the time. But when you see your stock approaching its 50 day moving average, it would be wise to take note of it. For example, if you were long a stock and you see your stock about to touch its declining 50 day moving average from below, you might want to consider selling your stock.
There is no indicator that works 100% of the time. But when you see your stock approaching its 50 day moving average, it would be wise to take note of it. For example, if you were long a stock and you see your stock about to touch its declining 50 day moving average from below, you might want to consider selling your stock.
Using the 50 day moving average to determine the health of a stock and its trend
I wrote about using the moving averages to determine the health of a stock and determining the trend of a stock in my other article What Is The Moving Average And How To Use It To Analyze Stocks. The article also deals with the 20 MA and 200 MA, so you might want to check it out.
But anyway, I will also write on how to determine the health of a stock using the 50 day moving average here.
But anyway, I will also write on how to determine the health of a stock using the 50 day moving average here.
Since the 50 day moving average is a medium term moving average, we can use it to determine the mid term health of a stock just by looking at whether it is above or below its 50 day moving average.
Well, you can stay away from buying stocks that are below its 50 day moving average. A stock that is below its 50 day moving average is usually not an uptrending stock.
You can use the 50 day moving average to determine whether it is in a mid term uptrend by looking at the slope of the 50 day moving average.
- If the stock is above its 50 day moving average then it is considered to be healthy mid term
- If the stock is below its 50 day moving average then it is considered to be unhealthy mid term
Well, you can stay away from buying stocks that are below its 50 day moving average. A stock that is below its 50 day moving average is usually not an uptrending stock.
You can use the 50 day moving average to determine whether it is in a mid term uptrend by looking at the slope of the 50 day moving average.
- If the stock is above its rising 50 day moving average, the stock is considered to be in a mid term uptrend
- If the stock is below its declining 50 day moving average, the stock is considered to be in a mid term downtrend
In the chart above, you can see how RIG started a decline and the 50 day moving average is declining. RIG is considered to be in a mid term downtrend. A mid term would be about 3-5 months.
Using the 50 day moving average to determine the health and trend of the stock enables the trader to filter out strong stocks for buy setups and weak stocks for short setups. It is not a buy or sell signal but just as a filter and quick check up.
Using the 50 day moving average to determine the health and trend of the stock enables the trader to filter out strong stocks for buy setups and weak stocks for short setups. It is not a buy or sell signal but just as a filter and quick check up.
Combining the 50 MA with a shorter MA to form a trade signal and detect trend change
I cover this topic in my other article How To Use The Moving Average Crossover. You might want to read it for extra info. Moving average crossovers can be used as a trade signal as well as an early sign of trend change. There are lots of moving average combinations that you can come up with but my favorite combination is the 20 period MA and 50 period MA.
In the chart above, you can see AMZN with its 20 day moving average and its 50 day moving average. The bearish moving average crossover in January gave a sell signal. It also indicated a trend change to a downtrend. In March, the moving average crossover gave a buy signal and it also indicated a trend change. The stock rose from there.
A bullish or bearish moving average crossover can be valid trade signals but moving averages are trend following indicators and therefore they do not work very well when a stock is trading sideways. Therefore, you need to combine moving average crossovers with other criterias in order to reduce whipsaws. A good example is the The 60 Min Darvas Box Long Trading Strategy. This trading strategy is in the 60 min but it still employs the bullish 20 MA cross 50 MA principle.
This article is part of the series on how to trade stocks.
To learn more about trading go to How To Trade Stocks, A Step By Step Guide.
A bullish or bearish moving average crossover can be valid trade signals but moving averages are trend following indicators and therefore they do not work very well when a stock is trading sideways. Therefore, you need to combine moving average crossovers with other criterias in order to reduce whipsaws. A good example is the The 60 Min Darvas Box Long Trading Strategy. This trading strategy is in the 60 min but it still employs the bullish 20 MA cross 50 MA principle.
This article is part of the series on how to trade stocks.
To learn more about trading go to How To Trade Stocks, A Step By Step Guide.