What time duration 200 day SMA are plotted?

[mrc]

Hi,

I have very basic knowledge of TA, so bear with my ignorance.

I am confused over what time duration is the right one to use 200 day moving average on a Stock or ETF chart
Is it 1 year?

I sometime look at 50 and 200 SMA on the chart, but not sure which duration of chart is the best to see while look at them, especially the 200 day one.



Thanks,
Mrc

[yogibearbull]

Look at $SPX/SP500 at Stockcharts. Defaults are 50-dMA and 200-dMA and Daily data points. So, 200-dMA involves 200 trading days. Time period can be anything, from few months to many years. Clearly, 50-dMA is faster than 200-dMA and some people like to use other fast-slow pairs. There is some significant to crosses of fast and slow MA and you hear about death-cross and golden-cross.
stockcharts.com/h-sc/ui?s=%24SPX&p=D&b=5&g=0&id=p56053292600

If you switch to Weekly data, then you have 50-wMA and 200-wMA. So, 200-wMA is now 200 trading weeks. Many who switch views are not aware of this.

[mrc]

Thanks Yogi! As always, you are very helpful to forum participants.
Probably, you were a teacher/Guru in your previous life :-)

My point is that a stock that is slow and steadily going up (ignoring gyrations in between), the 200 day SMA of longer period (for example, 3 years) will be lower than that for a shorter period (1 year), so the chances of breaking through 200 SMA is relatively high for 1 year period compared to 3, right?

Isn't it a good idea to look at 1 year duration? In other words, is any duration preferably/recommended by TA Pundits when looking at simple moving averages?

[ignatz]

Aug 6, 2021 21:49:45 GMT mrc said:

My point is that a stock that is slow and steadily going up (ignoring gyrations in between), the 200 day SMA of longer period (for example, 3 years) will be lower than that for a shorter period (1 year), so the chances of breaking through 200 SMA is relatively high for 1 year period compared to 3, right?

Isn't it a good idea to look at 1 year duration? In other words, is any duration preferably/recommended by TA Pundits when looking at simple moving averages?

Regarding your first paragraph above: you say:

"the 200 day SMA of longer period (for example, 3 years) will be lower than that for a shorter period (1 year)"

No.

Today's 200 DMA is the same on a 1 year chart as it is on a 3 or 30 year chart. It's always THE MOST RECENT 200 days, regardless of chart length.

I'm not sure you can draw the conclusion that a 200 SMA is more likely to be broken at least once over a 3 year period than over a 1 year period. That sounds like a variation of "the gambler's fallacy".....that the 5th flip of a coin has some relationship to the prior 4 flips.

A technician would likely tell you that a stock whose price dropped down toward the 200 DMA say 5 times in a row without significantly breaking it is showing more strength than a stock whose price had done that only once. Making a buy or sell decision from that is another matter entirely.

[retiredat48]

Aug 6, 2021 23:12:45 GMT retiredat48 said:

Aug 6, 2021 20:45:23 GMT yogibearbull said:

Look at $SPX/SP500 at Stockcharts. Defaults are 50-dMA and 200-dMA and Daily data points. So, 200-dMA involves 200 trading days. Time period can be anything, from few months to many years. Clearly, 50-dMA is faster than 200-dMA and some people like to use other fast-slow pairs. There is some significant to crosses of fast and slow MA and you hear about death-cross and golden-cross.
stockcharts.com/h-sc/ui?s=%24SPX&p=D&b=5&g=0&id=p56053292600

If you switch to Weekly data, then you have 50-wMA and 200-wMA. So, 200-wMA is now 200 trading weeks. Many who switch views are not aware of this.

Yes...at many stock chart places, I get differing values for differing time periods.

Thus for me, I use 6 month charts for my MAs. 

And if I am in decision mode, I double check with various stock chart providers re what current MA values are.

R48

[liftlock]

Aug 6, 2021 20:20:26 GMT mrc said:

I have very basic knowledge of TA, so bear with my ignorance.
I am confused over what time duration is the right one to use 200 day moving average on a Stock or ETF chart. Is it 1 year?
I sometime look at 50 and 200 SMA on the chart, but not sure which duration of chart is the best to see while look at them, especially the 200 day one.

MRC,  I have found the free stock charting education sites to be helpful in answering questions about TA:

www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp
school.stockcharts.com/doku.php?id=technical_indicators:moving_averages
www.incrediblecharts.com/indicators/moving_average.php

There is no best moving average period or chart duration to use.  It depends on how often someone wants to get in or out of a trade.  Day traders would not be inclined to use a 200 DMA because it would rarely provide buy or sell signals.  50 day and 200 day moving averages are popular and widely followed by longer term investors.  Jim Otar, one authority on retirement planning, suggested using 5 month and 12 month moving averages to determine whether a retirement portfolio should be allocated to stocks.  It will issue buy and sell signals more slowly than using 50 and 200 day moving averages.  Longer moving averages may generate fewer whipsaws, but they may not work best. There are no guarantees about what might work best.

Here is an interesting place to check out the buy and sell signals generated by moving averages of different durations.  You can see that the stock price for Microsoft is in an up trend because it has buy signals for all moving averages time periods.  The opposite is true for Allibaba.  You might study the charts of these or other stocks or Funds to gain an understanding of what the moving averages are telling you and how frequently they are issuing buy and sell signals.  

www.investing.com/technical/stocks-moving-averages

[yogibearbull]

mrc, there are several ways to sample data series. Just picking daily, weekly or monthly values is one way. Moving-averages (MAs) are another way. These samplings do data smoothing.

Timeframe of the chart doesn't normally affect the MA. But timeframe of chart should be much longer than the sampling window used. This is why traders may use much shorter sampling windows. However, the notion of a faster sampling and slower sampling is more widespread and is also the basis of stuff like MACD etc.

[richardsok]

mrc:

I'll add a couple of thoughts.

I watch moving averages constantly. They are a part of the Rube Goldberg hash of trading signals I use. Although all of the responses to your question above are correct, I would put a word in for the limitations of MAs, and that is their signals are not definitive. Back when I started using technical signals I found I could always talk myself out of heeding a moving average indicator, to wit: do I trade when the MA is STARTING to change, or after its direction (or crossover) is definitive? Too early means too many trades, too late means you trade only after a big move has already been made.

Unless you use a relatively slow indicator, like a 20dma x 50dma cross on a one year chart, you're apt to be trading more than you like .... but that's the price you pay. Effective use of indicators demands that you are watchful and quick to act .... surely not for investors who "set and forget" for a couple of months. You also have to learn to set aside your opinions, hunches and biases -- definitely NOT an easy discipline to master.

I like the Parabolic SAR (PSAR) or the MACD Historigram for the reason there is no room for fudging or interpreting their signals. (It's IN or OUT. Period.) I find they are best to monitor late in the day, after 3:30 pm, because it's not uncommon to see a PSAR button appear early in the day and then vanish a couple of hours later.  And you take into account market proclivities to often go manic in the first or last half hours.

One PSAR technique is to sell 1/3 your position if you see a "sell" signal late in the day and to immediately sell the rest after 10AM the next day if/when the second "SELL" button pops up -- that way you reduce trading in the teeth of a brief whiplash.

I cannot overstress the importance of applying shorter term technical signals to trading assets with LOW VOLATILITY charts ONLY. Shorter term signals are practically useless when overlaid onto zig-zag price charts. For those, only longer term signals (like 20dma x 50dma cross) are effective.

[retiredat48]

Aug 8, 2021 19:55:42 GMT richardsok said:

mrc:

I'll add a couple of thoughts.

I watch moving averages constantly. They are a part of the Rube Goldberg hash of trading signals I use. Although all of the responses to your question above are correct, I would put a word in for the limitations of MAs, and that is their signals are not definitive. Back when I started using technical signals I found I could always talk myself out of heeding a moving average indicator, to wit: do I trade when the MA is STARTING to change, or after its direction (or crossover) is definitive? Too early means too many trades, too late means you trade only after a big move has already been made.

Unless you use a relatively slow indicator, like a 20dma x 50dma cross on a one year chart, you're apt to be trading more than you like .... but that's the price you pay. Effective use of indicators demands that you are watchful and quick to act .... surely not for investors who "set and forget" for a couple of months. You also have to learn to set aside your opinions, hunches and biases -- definitely NOT an easy discipline to master.

I like the Parabolic SAR (PSAR) or the MACD Historigram for the reason there is no room for fudging or interpreting their signals. (It's IN or OUT. Period.) I find they are best to monitor late in the day, after 3:30 pm, because it's not uncommon to see a PSAR button appear early in the day and then vanish a couple of hours later.  And you take into account market proclivities to often go manic in the first or last half hours.

One PSAR technique is to sell 1/3 your position if you see a "sell" signal late in the day and to immediately sell the rest after 10AM the next day if/when the second "SELL" button pops up -- that way you reduce trading in the teeth of a brief whiplash.

I cannot overstress the importance of applying shorter term technical signals to trading assets with LOW VOLATILITY charts ONLY. Shorter term signals are practically useless when overlaid onto zig-zag price charts. For those, only longer term signals (like 20dma x 50dma cross) are effective.

I generally agree with richardsok here.

Over the years I have stated that determining crossovers or signals using moving averages is part of the "art part" of investing.  I do not use rigid signals such as 1% crossovers; I make the final decision as to when to act, based on "all things considered".  Like, one has to occasionally deal with "flash crashes."  I seek what I call a "strong penetration."

Second, realize that thousands of computers are now set-up to act on MA crossovers.  It is not unusual to have a complete sell trigger, followed in a day or two with a strong price rebound upward.  Such whipsaws happen a lot on individual stocks; not so much on fund price patterns.

For longer term investors, a key point to watch is the SLOPE of the MA line on a chart.  It tells the trend very well.  If line is skiing downhill, likely a downtrend.  You want to be investing/accumulating in uptrends!  Often the slope can hit neutral or flat.  If using longer MAs such as 200 dayMA, whatever line movement wins out, up or down slope, will often be in place for a very long period.

Note today, the vast majority of mutual funds/ETFs are in uptrends per MAs.

R48