The 200-day moving average is the measure of how a stock or fund has changed over a 200 day period. Traders and others use moving averages to figure out more about how a stock or fund has been performing. The 200 day average is a longer term average, where pros commonly use shorter averages like a 10 or 15 day moving average to look at short term trends. Longer term trend analysis may be well served by a 200-day moving average.
In general, the moving average helps to show the "big trends," where stocks or other equities are vulnerable to a lot of small, day to day changes. An easy way to explain a moving average is that it "smoothes out" any little fluctuations to reveal a larger and more substantial move over time. Investors benefit from these kinds of analysis, sometimes called "technical analysis," when they are deciding what position to take (how much to buy or sell) on a stock or fund.
Investors who are doing technical analysis and looking at a 200-day moving average might use visual tools like candlestick charting. Candlestick charting is a visual way to show trends, since the chart has a "wick" that shows upward or downward movement over a trading day depending on color. Investors can take all of these "wicks" and process them into a moving average that makes sense for a stock or financial product.
Different kinds of moving averages help provide data in different ways. A "simple moving average" just takes the straight average of day prices. A "linear moving average" applies more complicated analysis and calculations, as does an "exponential average," which places more emphasis on trades and prices that have happened more recently.
Finance pros evaluating moving averages look for "uptrends" and "downtrends" for a product. They also look for "crossovers" where the price interacts with the moving average. Investors can get updates from professional analysts that mention crossovers, and other events, and draw conclusions about likely future stock prices according to what they have discovered about past price movements. Using a 200-day moving average, for example, may include different points where analysts can deem a stock "overvalued" or "undervalued" relative to the moving average with consideration of other factors involved in pricing.
Learning more about a moving average and other kinds of analysis can empower a trader to make smarter trades. Because of the inherent volatility and risk involved in most kinds of stock trading, there's a need for skilled analysis to help project future prices. Sometimes, this investigation takes the place of the simpler calculations involved in more conservative investment opportunities.
