One of these is the 50 Day Moving Average, or the 50 Day MA for short. In this article, we’ll find out the definition of the 50 Day Moving Average and how it’s used for trading decisions. We’ll also discuss how it’s calculated and how to develop a 50 MA strategy to use it effectively.
What is 50 Day Moving Average?
The 50 moving average focuses on the average price points of an asset in the last 50 days. When you know these numbers, you might be able to correctly predict upcoming price movements for trading opportunities. It’s important to regularly check the 50-day MA in order to get the most accurate picture.
Those who developed the 50 Day Moving Average wanted to give traders a way of figuring out their next move. This will depend on whether the price of an asset is above or below the 50 Day MA. Additionally, you’re able to get a visual indication of trends with the use of a 50 day moving average chart.
This is one of the most popular technical indicators that traders use in financial and stock markets. However, make sure to use it in combination with other analytical tools. This will give you a better picture of what’s happening in the markets.
How is the 50 day moving average used?
As mentioned earlier, the foundation of 50 MA is to compare the average 50-day price range with the current prices. From there, predictions of possible price increases or decreases are made, followed by actual trades.
A 50 day moving average chart is plotted to visually reveal the average closing price of an asset during this period of time. With this information, traders are able to identify:
- Trends: The overall price trend of a stock, currency, commodity, and so on can be predicted. If the price of the asset is generally trading above the 50 day MA, there’s an uptrend. However, if it’s below, it means there’s a downtrend. So, when there’s a 50 day moving average breakout, a strategy can thus be developed.
- Buying and selling opportunities: A 5- Day Moving Average acts as a support level whether prices are above it. And, it’s a resistance level when the price is below the 50-day MA.
- Crossovers with other types of moving averages: There are other types of MAs such as the 200-day Moving Average. So, if there’s a bullish crossover, where the 50-day MA crosses over the 200-day MA, this suggests an uptrend.
How to Calculate the 50-Day Moving Average
So, now that you know how the 50 Day Moving Average is used, let’s find out how to calculate it. There’s more to this than just noting the prices from the last 50 days. Calculating the 50 Day MA involves the following:
- Select the time period you want to calculate the 50 day MA for. These will be the price of the asset at the closing of trading that day. Make sure it’s 50 consecutive trading days.
- Add up these closing prices to get a total. You can do this with a calculator or with formulas in an excel sheet.
- Divide the total number by 50 (since it’s from the last 50 days). The number you end up with is your 50 day moving average.
The above gives you the latest 50 day MA. So, whenever you want the latest numbers, you’ll need to calculate the latest moving average from the last 50 days.
Why is 50-Day Moving Average important?
As mentioned earlier, there are a number of tools available to predict price trends and the 50 Day MA chart is one way to do this. But, what are the main reasons why traders look to the 50 MA for help with their trading?
Well, to start, it helps traders keep track of market or security index trends. By continuously updating the 50 day MA, you’ll have a good idea of whether prices are headed upward or downwards.
Also, it helps traders to develop a 50 MA strategy for long-term trading. Price changes can be sudden or will take a long time to take effect. But, by looking at the 50 Day Moving Average, you’re able to see a stock price’s volatility within a shorter space of time. Is this moving average changing drastically from day to day? Or is it generally consistent?
And, as mentioned earlier, when used with other tools or indicators, this chart can be very helpful. So, make sure to also see if the patterns you’re seeing with the 50 day MA is similar to 200 day MA, for example. This can confirm if your predictions are likely to come right.
50-Day Moving Average Trading Strategy
Using the 50 day MA is not a once-off thing. As the name implies, this is a “moving” average, so your strategy needs to consider this. Market prices will never be consistent, so you’ll need help with signals to buy or sell. So, a 50 EMA trading strategy, for example, will help you determine the market or index trends, and then help you make trades accordingly.
A basic 50 Moving Average strategy is as follows:
- Check if the stock’s prices are over or under the 50 day MA. If the price is over the 50 day MA, it’s a bullish trend. However, if it’s below, there’s a bearish trend emerging.
- Now that you know the trend, where’s your entry point? This needs to be in the direction of the trend. So, if there’s a bull run coming up, look for buying opportunities when the prices drop below the 50 day MA.
- Manage your risk by setting your stop-loss level below the entry point. And, also, set the take-profit level for your profit target. A good trader knows how to buffer themselves from losses, and this is an effective way of doing this.
We like to take things further for our software users and have an EMA Cloud which reaally visuallises these non linear support and resistance zones for stocks traders. The below shows the 50 EMA Cloud in purple. Ohh by the way see how our xBrat Elliott Wave Indicator works well with this EMA 50 cloud.