The 200 Day Moving Average

The 200 Day Moving Average explained by professional Forex trading experts the “The 200 Day Moving Average” FX trading team.

The 200 Day Moving Average?

One of the most popular indicators in the world is the 200 Day Simple Moving Average.

This indicator can be found on the charts of many investment banks, hedge funds, and market makers as a key point of analysis for a multitude of reasons.

The indicator’s usage has become so widespread that it will often be looked at in Fundamental analysis; for the premise that so many traders may be watching the indicator that corresponding reactions may be seen when price encounters this stalwart of the chart.

For example, during the Financial Crisis the EURUSD currency pair lost over 3500 pips in value (21.58%) in only 3 ½ months. The Troubled Asset Relieve Program (TARP) was announced on October 14, 2008; followed shortly thereafter by the first round of bond purchases by the Treasury department.

This gave the world hope. The market rallied massively.

EURUSD moved up nearly 2400 pips (19.35%) off its lows, rallying all the way until price ran into the 200 Day Simple Moving Average.
This brings us to the first usage of the 200 Day Moving Average; as support and/or resistance.

Support and Resistance

Few technical attributes can be as important to a trader as support and resistance. And while there are numerous ways of finding potential levels, few are as interesting as the 200 Day Moving Average for the very reason we mentioned at the beginning of this article: The potential for a self-fulfilling prophecy to take place as traders around the world react by selling when price resists at the 200 Day Moving Average, or buying when price is supported by the 200 Day MA.
One of the primary desires of such a strategy is the thought that the trader might be able to get in the trade in the direction of the longer term trend.

After all, if price is moving down to the 200 Day Moving Average, then price is moving lower after having previously traded above that level; indicating that the trend was previously to the upside. This brings us to another popular usage of the 200 Day MA: As a tool to determine trends.

The 200 Day Moving Average as a Trend Filter

Price has crossed the 200 Day Moving Average only once in 2012 on EURUSD (when looking at a closed bar for confirmation of the crossover).

Price made only six such crosses in 2011, over 3 different instances; many of which were followed by an extended run in the pair in that direction.

The 200 Day Moving Average Conclusion

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