The 50-day simple moving average (SMA)is popular with traders and market analysts because historical analysis of price movements shows it to be an effective trend indicator.
The 50-, 100-, and 200-day moving averages are probably among the most commonly found lines drawn on any trader's or analyst's charts. All three are considered major, or significant, moving averages and represent levels of support or resistance in a market.
- The 50-day simple moving average is a trendline that shows the average of 50 days of closing prices for a stock, plotted over time.
- The 50-day simple moving average is used by traders as an effective trend indicator.
- The 50-day average is considered the first line of support in an uptrend or the first line of resistance in a downtrend.
- If a stock's price moves significantly below the 50-day moving average, it's commonly interpreted as a trend change to the downside.
- A simple moving average places equal weight on each session's closing price while an exponential moving average places more weight on recent closing prices.
What Is the 50-Day Simple Moving Average?
The 50-day simple moving average is a trendline that represents the daily plotting of closing prices for a stock, averaged over the past 50 days.
Depending on a stock's current price action and where it appears relative to the 50-day simple moving average, this trendline can indicate a stock's strength or weakness.
It's called simple because it weights each day's closing price the same. This contrasts with the exponential moving average (EMA), which weights recent closing prices more heavily.
Understanding the 50-Day Simple Moving Average
The 50-day moving average is the leading average of the three most commonly used averages. Because it's shorter than the 100- and 200-day averages, it's the first line of major moving average support in an uptrend and the first line of major moving average resistance in a downtrend.
The 50-day moving average is popular because it works well as a trend indicator. The more accurate a moving average is, the more useful it is for traders and analysts.
The ideal moving average is a trendline that price will not likely violate on a mere temporary retracement (possibly giving a false market reversal signal if it does). It can also be used to place a trailing stop on an existing market position.
Additionally, the a moving average can be helpful because stocks that approach it on retracements can signal additional market entry points. Through trial and error using various moving averages, the 50-day moving average has served these purposes well.
In a sustained uptrend, a stock's price generally remains above the 50-day moving average, and the 50-day moving average remains above the 100-day moving average. If the price moves significantly below the 50-period moving average, and especially if it closes below that level, it is commonly interpreted by analysts as signaling a possible trend change to the downside. The 50-day moving average crossing below and remaining below the 100-day moving average gives the same signal.
Breaching the Trendline
Watch for times when the price of a market leading stock breaks below the 50-day moving average on heavy volume and can't sustain a rally back above it. That may signal that buying demand is disappearing and it's time to sell.
Disadvantage of the 50-Day Simple Moving Average
The key downside to the 50-day moving average is that it uses historical data. That means it can respond slowly when prices change quickly. There are times that the market tends to follow moving average support and resistance levels. At other times the indicators get no respect.
The 50-day average can perform well during strong market conditions. In unpredictable or choppy markets, the same can't necessarily be said. Some of the resulting uncertainty caused by this can be mitigated by adjusting the moving average time frame.
What Is a 50-Day Moving Average?
The 50-Day Moving Average is a trendline formed by plotting over time the average of the past 50 days closing prices for a stock. It can indicate changing price trends and is used by traders to time the placing and execution of trades.
Is the 50-Day Moving Average a Useful Metric for Traders?
Yes, it is. That's because, as a trend indicator, it can signal a stock's increasing strength or weakness sooner than the 100- or 200-day moving averages. Its trendline is a level that prices will not likely breach on a temporary pullback. And it's useful as a guide for placing a trailing stop on an existing position.
How Do You Calculate the 50-Day Moving Average?
To calculate the 50-day simple moving average, just take a stock's closing prices for the past 50 sessions, add them up, and then average them. Each day you do this, plot the resulting average price. Over time, you'll get an extended trendline. Compare the stock's current price to this line for signs of strength, weakness, and trend reversals.