Posted by Blain 7 February 2007

50 Day Moving Averages Explained

The 50 Day Moving Average (MA) has to be one of my favorite lines. The 50 Day Moving Average is really just what it is, 50 (the last 50 days) Moving Average (Average movement). So, what we are looking at is a line that represents the average price of a stock over the last 50 days. This post is for people who want to understand why they should take note of it when looking at charts. Also, it may help you understand more its meaning overall.

The 50 MA is a line that really can be support OR resistance. When a stock is trading around or on this line, it really can tell you a lot about the stock you are about to get into.

  • Support - Let's say we are looking at a company whose stock price has been increasing for some time. The stock has had so many up days that it hasn't touched its 50 MA for well over 3 months. Well, we watch it and we see it starts falling towards the 50 MA, and one day it finally hits it and immediately bounces up in the same day, so what the heck? If you see this on a chart, it is because the 50 MA acted as support for the stock.
  • Resistance - If a stock has been trading below its 50 MA for some time, then starts to trend back upwards, the 50 MA is normally a point of resistance. This is due to its wide spread use and placement on charts. For technical traders, it gives them an easy target to sell into this new strength or even short the stock.

As you start to watch stocks and look at more charts, just take note of this red line. It is extremely important because whenever a stock trades at or around this line it can really foretell where the stock is going to go next. Here are some examples for visual clarification:

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Comments

  1. Posted by Kavit Haria on September 8, 2007 at 2:48 pm

    Hi Blain

    I've just come across your blog for the first time, and it's one of the best I've found in stock market investing.

    I'm new to investing, however I've been building successful businesses on and offline for the last 3 years, most very fruitful. I guess I want to check out this beautiful game of investing now so have spent the whole day reading and educating my self.

    Just wanted to drop you a comment and say thanks.

    With love,
    Kavit

  2. Posted by Tom on March 1, 2008 at 3:24 pm

    I checked out the fund AEPGX using yahoo finance but for some reason the 50 day MA does not seem anywhere close to the actual stock price. The 20 day MA seems to work well with your above statement though.

Trackbacks

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