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The 200-day moving average is a technical indicator used to discover and evaluate long-term trends. It is just a line that reflects the average closing price for the previous 200 days and may be applied to any asset.
The 200-day moving average is extensively utilised by forex traders since it is seen as a solid indication of the currency market’s long-term trend. If the price is continuously trading above the 200-day moving average, the market is in an uptrend. Markets that trade persistently below the 200-day moving average are considered to be in a downtrend.
The 200-day moving average is determined by summing the closing prices for the previous 200 days and dividing by 200.
200 Day Moving Average Formula = [(Day 1 + Day 2 …. + Day 200)/200]
Every new day yields a new data point. Connecting all of the data points for each day produces a continuous line that can be seen on the charts.
The 200 day moving average has grown in popularity since it can be utilised to help traders in a variety of ways.
The 200-day moving average may be used to discover previously accepted significant levels in the FX market. In the forex market, the price will frequently approach and bounce off the 200-day moving average before continuing in the direction of the current trend. As a result, the 200-day moving average may be used to determine dynamic support or resistance.
When the market is in an uptrend, traders will attempt to go long when the price bounces off the 200-day moving average. Similarly, in a downtrending market, traders may seek short positions when the price bounces from the 200-day moving average. In an uptrend, stops might be put below (above) the 200 moving average (downtrend).
Once the long-term trend has been determined, traders frequently analyse the trend’s strength. This is significant since a weakening trend may indicate a trend reversal and provides an excellent opportunity to exit an existing trade.
Because they follow more recent price movements over a shorter time period, shorter-term moving averages such as the 21, 55, and 100-day moving averages help traders identify whether an established trend is losing momentum.