200 Period Moving Average - What's the Deal?

Hi Everyone,

I’ve read in more than one place that the 200 period moving average is “da bomb!” It’s the one banks and huge trading institutions use, is therefore respected by price, etc.

As the story goes, true or mythical - probably true - if price is above the 200 MA its bias is bullish, and if below the 200 MA its bias is bearish. Well, I’ve placed it on my charts from time to time, and honestly, I haven’t noticed a difference. I’ve seen price dancing up and down above it, up and down below it, and straddling it like a shaky tightrope walker, all in seemingly snobbish disregard of the MA - and many times, as long as it’s doing the up and down dance, I’ve caught good up and down moves on both sides of the MA - so what’s the deal? I’m not trying to be facetious or cynical, I’m just trying to understand. Am I missing something, and if so, what is it? Bottom line: If it’s a tool I could use to my advantage, I’d like to know how and when. Can we have some good input?


P.S. For those of you who have been following my progress, I’ve got a smile on my face as I’m in net profit in the last 25 or so of my demo trades - but not by much - and until I fine tune what I’m working on to be consistently and reasonably in profit, I’ll still be in demo - but I’m encouraged. Thanks to all of you who have contributed.

Take care, and God bless,

1 Like

I’ve spent some time exploring the 200 sma (and EMA), but didn’t find an edge using it by itself. You can use it as a filter in conjunction with another system to improve your results, and only trade in the direction of the 200 moving avg. I prefer trading shorter term trends though.

I agree Norm., I think the importance of the 200MA is overstated for short-term traders. I do look at it but only as one chart factor out of a dozen or so to help me gauge the strength and consistency of a trend. But really it is perhaps much more applicable to long-term buy-and-hold for shareholders, not the sort of approach that’s translatable to forex.

I’m really happy to hear that, Norman. I’m glad that your tenacity is starting to bear fruit. :slight_smile:

As to your question:

This particular MA, the 200 period, is famous mainly because of its early beginnings. Its history seems to stretch back to the early development stages of TA in the stock markets. At that time, it was the daily closes that were used and were probably mainly calculated manually using the simple MA formula. So a 200 day MA line would have been considered as an indication and measure of the direction and strength of the underlying annual trend (although 250 days would be maybe closer to an actual year).

In those early days of stock markets, the main participants were not day traders, they were typically the banks, funds and wealthy investors - and all looking to buy and hold as long term investments, there was no CFD/electronic/small retail/ instant pricing/filling/microlot/VPN/ type world in existence.

But a Simple MA is just a mathematical formula which told us what was the average price of the prior 200 daily closes, nothing more. It just showed what the average yearly overall price direction was which could then be compared with where prices actually were “today”.

But in today’s trading world that same graphical representation of the slowly evolving annual changes in the stock market has become applied to every timeframe from daily down to mins, etc. Therefore its initial purpose has evaporated…but its reputation has not!

Therefore such a classic indicator, with an established past record in some form or other, becomes vastly familiar to the millions of traders and other market participants. The impact of this is to focus and concentrate the entire attention of this audience on the specific value of this single MA. The end result is a self-filling limited reaction whenever prices approach these levels - on a daily, 4H, 1H, 15min TF and so on.

Naturally, by sheer definition, in a rising or falling trend, current prices will be leading the MA. So it is predominently true that prices below it are bearish and above it bullish. But that, by itself, does not make this 200-period MA into a trading system.

As the saying goes: “If you don’t know where you are going then all roads will get you there”. In the same way, if one does not know what one is looking for from their trading then how can one interpret what such a longer term MA is be used for. A trend trader may look for one thing whilst a swing trader may look for something else. A day trader is in a different class altogether and a scalper probably would have no interest whatsoever in this MA.

Personally, I do plot this line but I only really use it to help in defining target levels and possible re-entries in longer term trends (although I don’t actually hold positions long term - this level just gives a good definition for a reasonable entry/stoploss level with a healthy R:R ratio.)

In order to try to accelerate and improve accuracy of the signals generated by such an MA, various versions of calculating MAs have been devised such as exponential, weighted, etc which either add greater emphasis to the near term closes and/or incorporate some form of smoothing process such using high/low/close values instead of just the close. But I think that this particular MA is still most commonly used with a simple average of the closing values.

1 Like

Here’s one fairly tried-and-true application of the 200-period moving average to forex trading:

The 4hr200SMA is at the heart of Dennis’ very successful trend-following methodology. Essentially, Dennis guages a currency’s strength or weakness by the degree (expressed as a percentage of price) to which it deviates from its own 4hr200SMA.*

Many newcomers to his thread have asked, “Why the 4-hour chart, instead of the daily, or some other time frame?”, and “Why the 200SMA, instead of the 50, or the 100, or some other?”

Dennis has basically said that trial-and-error optimizing has proven to him that the 4hr200SMA works better than anything else.

And that, I guess, is the key point regarding this moving average, or any other tool:
If it works for you, use it. And if it ain’t broke, don’t fix it.

*Scroll to post #1181 in Dennis’ thread for a short video describing the calculations he makes using the 4hr200SMA in order to determine his Strong/Weak Ratings and Rankings.

Norm, it’s good to see you back here in the forum. While the Kilauea volcano was making the news on a daily basis, I was wondering whether you or your community were affected by it.
I hope that all is well with you, your family, and your neighbors.


I have 100ema and 200ema on my charts, often, certainly on the Daily. It can act as a nice line of S&R in a trending market, in my experience.


Although I’m sworn against using MA’s as s/r, the 200EMA is making a brave attempt to be real trend support for the major US stock indices.

This looks quite neat, but when it comes to the DAX, FTSE100, Gold, Silver, Brent and the major forex pairs, its much less convincing.

Hey Manxx,

Great hearing from you, and thanks for the affirmation.

My messing with forex has had its fits and starts as I’ve been quite busy with other things, but I’m back to it now, and all the bits and pieces seem to be coming together. (So many bits and pieces! Some fit for the dump, some worth keeping, and then fashioning the latter into an organic whole that works.)

Wow! Quite a history of the 200! I’ll be reading it again.

Thanks - and again, great hearing from you!

1 Like

Hi Clint,

Good hearing from you, and thanks for the lead to Dennis’ use of the MA. I’ll take a peek at it as I’m able.

I appreciate your thoughts concerning how I, my family and community are doing under the shadow of Kilauea.

My family and I live on the other side of the island, so there’s no lava threat to us here. Of course, we are all grieved at the great misfortune suffered by those downslope from the volcano. 714 homes gone up in flames? It’s unfathomable! An enemy dropping bombs could hardly do more damage with conventional weapons!

The road around our island is only about 300 miles, so we all feel for each other! We all know some people who were directly affected. Many who lost homes are still living in shelters, mattress to mattress with others. Almost none had volcano damage insurance as its cost is astronomical. In addition, many have lost jobs in the area as people have evacuated, roads have been closed, and businesses boarded up indefinitely; and tourism, a major industry here, has been down 50%. Add to these blessings the privilege of breathing volcanic gases, which most on the island, including me and my family, do daily due to the prevailing winds; and the relative gloominess of living in this cloud. Some days the air is relatively vog (volcanic fog) free, but on others we can hardly see the ocean, even from just a half mile upslope from it.

This is not to say that my family and I are not happy campers. We are! The joy of the Lord is our strength! I’m almost seventy-four, and I still run - if you could call it running - and do mile-long ocean swims beholding the glories of the Lord’s creation with mask and snorkel.

Thanks for the welcome back to the forums. I’ve made some good friends here, learned plenty, and have even contributed a bit.

God Bless, Clint, and take care,


In a trending market, the 200 ma can be a very powerful point of support or resistance, if you have not seen it work so well in the last couple of months is because markets have not been trending, GBPUSD below is one of the few long term trends I have identified on my thread. I watch this moving average on Daily, 4hr and 1hr charts


Hi all,

I cannot respond to everyone’s input individually, but I want to thank you all, not just for me but for everyone who has and will benefit from your comments.

I wrote that I’m refining a system I’m working on; and “the deal” I just discovered about the 200 MA in respect to that is that I think I found a way to bring it under control and make it useful.

I’m experimenting with the dailies as that’s the minimum time frame that, as far as I can tell, will work well with my work schedule. We are all looking for ways to put the odds more in our favor, and this is where the MA comes in.

As you know, even the 200 MA has its twists and turns, causing one to wonder, at times, what the overall trend really is; so what I’ve done was draw a ray from the very beginning of the MA to the very end, creating a clear-as-a-bell up or down slope. Now, what I intend to try is this: Whether price is above or below the MA, I’m going to trade ONLY in the direction of the slope (unless there’s a very strong signal warranting a trade in the opposite direction). I’ve got other more important filters, but I expect that this will help, hopefully significantly - and hopefully, it will prove helpful to some of you.


Hi again,

By way of clarification: I wrote that I’m testing trades on the daily charts, and having revealed my age, some of you may be wondering if I’ll die before my testing is completed. Well, take heart, friends. I’m testing on Forex Tester 3; so whereas a fifteen candle trade would normally take three trading weeks to complete, I can zip through the fifteen candles as quickly as I want, but slowing down, and even stopping cold in my tracks, to study each candle before I proceed.

Take care,

Hadn’t even crossed my mind! Afterall, there are several hundred people in the UK over the age of 100 yrs that are still driving…

Time is not even an issue yet! :slight_smile: :slight_smile:

100 years old and still driving? Think I’ll stay here and take my chances with the volcano! :smile:


Hello again, Norm

Here’s a suggestion: Don’t limit yourself to just one moving average.

Be bold. Put a bunch of MA’s on your chart. It will calm your mind.

If you place 40 different moving averages on a chart — and then remove the candles —
you get something like this:

I did this several years ago, when I had a bit too much time on my hands.

1 Like

That’s great, and amazingly beautiful. Looks like some of the creatures I see when I go diving here. I’m sure it can be useful for less aesthetic endeavours, like forex trading. Worth thinking about.


Guess what. I just put your image on my computer desktop. Looks great! Thanks for the turn-on.


Aloha Clint and Dennis,


Thank you much for pointing me to Dennis’ thread.


Your strong vs. weak analysis combined with what to look for as the pairs relate to the 200MA looks very promising. I’ll be reading your entire thread as well as your daily strong-weak analyses, and will definitely follow up on the charts.

For all of you eavesdroppers who’d like to check out Dennis’ thread, here it is: Trading the Trend with Strong Weak Analysis.

Thanks guys.

With much appreciation,

1 Like

Here’s a little article i found. Might be worth reading. For what it is worth.


I did a quick check on a 1min chart. Price does seem to respect 200MA. I guess it should work for the daily chart too.

MACD 200, 100, 70. identify potential bull or bear trade. 5 candlestick close above or below 200MA provide the entry.

Gotta stop here. My phone is down to 1%

PS: In addition, If on a 5min chart price is trading below 200MA , only look for a sell trade on the 1min chart. Vice versa.

Thanks Alphahavoc,

I saved the article. I’ll read it more closely for possible follow-up. “Possible” only because of time constraints.

Good screenshots. Very clear retests, bounces and breakthroughs.

Thanks and Take Care,