200 Day, 50 Day Moving Averages

  

Moving averages are a series of snap shots of stocks' closing prices over a 50- or 200-day period when the market actually ran (or walked... or crawled).

The charts you see on traders' websites that show a bunch of lines going up and down? Those are the moving averages. Look closely and you'll see a line following the closing prices of a stock and another line either above or below that line. If a stock's price is headed up, there might be what traders call a support line under it. This one shows how low the price will drop before bouncing back up. If a stock is heading to tank-ville, there will be a line drawn above the averages. That one shows how far the stock will jump before it's pulled back down.

The idea is that you can use this info to get an  idea of how the stock's doing and how it might do in the future.

Of course, trying to predict how stocks will do over the long term is a lousy idea. Even financial types in big jets who are paid to predict how stocks will do are right only about as often as the Psychic Friends Network. Stocks don't always follow averages: when they don't they surge past the resistance or support lines, it's called a break out.

Related or Semi-related Video

Finance: What are moving averages?7 Views

00:00

Finance a la shmoop... what are moving averages? ooh I need another tissue that [Girl crying]

00:09

average I just can't get enough so moving okay yeah yeah that's not at all

00:13

what this term is about here's a chart here's a set of trailing averages 50-day

00:18

the blue line they're hundred-day the black line and 200-day the green line

00:22

there... note that we say trailing average why trailing? well people we lost our

00:29

crystal ball yeah Warren we know you took it [Warren Buffett eating dinner]

00:31

so averages for normal humans can only be trailing because trailing stockticker

00:37

closing prices give us data we can actually use stock averages don't take

00:42

future data that we're merely guessing at on their charts... only

00:46

real numbers that we can actually point to so here's the 50-day average for [50-day average for coca cola stock]

00:50

coca-cola stock KO in 2012 and if we move forward a year and change well here

00:56

it's a 50-day average right there looks a little bit different and while the 50

01:00

data input elements from its closing price each day vary so the average of

01:06

those data points will move and why do moving averages matter well for

01:11

fundamental analysts kinds of investors you know the people who care just about [Fundamental analyst people appear]

01:14

the cash flow and earnings and margins and revenue growth of companies well

01:17

really don't matter but for chartist types of investors that is those who

01:22

focus really only about trading trends and shapes and curves and the metrics

01:27

behind what patterns of stocks take in the future well, they matter a lot then

01:32

in fact the 200-day moving average is generally a kind of Chartist living [Priests in church]

01:37

Bible for most Wall Street traders and taking meaning from it is all about

01:41

recognizing patterns and then imputing likely future patterns based off of

01:46

those shapes for example if you're looking here at the peak of a Head and [Head and shoulders stock price graph]

01:51

Shoulders chart, the trailing average of this

01:55

say 50-day set here of data points is the line about here but if you move

02:01

forward and look at the back half well then the moving average is about here [Moving average lines moves]

02:06

and if you consider the entire chart well it's about here and the lines are

02:10

there in theory to give color as to what direction the

02:13

market or this given stock is heading and yep sometimes it works and sometimes

02:18

it doesn't [Man eating dinner with Warren Buffett]

Up Next

Finance: What is a Chartist?
26 Views

What is a Chartist? A chartist is a trader and/or analyst who relies on technical analysis and charts in order to make decisions for trading the ma...

Finance: What are At-the-Close Order and At-the-Opening Order?
24 Views

What are At-the-Close Orders and At-the-Opening Orders? At-the-Close orders are given to brokers and the brokers can only fill them at the close of...

Finance: What is Regression Analysis?
7 Views

What is Regression Analysis? Regression is a form of statistical analysis that goes back to trading history and isolating a particular variable to...

Find other enlightening terms in Shmoop Finance Genius Bar(f)