Almost every charting platform offers a moving average, and two of them show up more than any others: the 50-day and the 200-day. Financial news mentions them constantly. “The index closed below its 200-day average.” “A golden cross just formed.” Beginners hear this and assume it’s a secret code that experienced traders can read.
It isn’t a code, and it isn’t a prediction machine either. A moving average is a simple calculation that smooths out price so the trend is easier to see. The 50-day and 200-day versions are popular because lots of people watch them, which gives them a little extra weight. They’re also misused all the time, usually by people who treat them as buy and sell buttons.
This guide covers what they are, how they’re calculated, how traders actually use them, and where they go wrong.
What a moving average is
A moving average takes the closing prices over a set number of periods and averages them. Each day, the oldest price drops out, the newest one comes in, and the average is recalculated. Plot those averages as a line, and you get a smoother version of the price chart.
A 50-day moving average uses the last 50 trading days of closing prices. That’s about ten weeks. A 200-day period uses the last 200 trading days, which is roughly forty weeks, or a bit under a year. Weekends and market holidays don’t count, so 200 trading days stretches across nearly a full calendar year.
Here’s a tiny example with a 5-day average so the math is easy to follow. Say a stock closed at $10, $11, $12, $11, and $13 over five days. The average is $57 divided by 5, which is $11.40. The next day it closes at $14. The $10 drops out and the $14 comes in, so the new total is $61, and the average becomes $12.20. The line moves up because recent prices are higher than the ones that fell out of the window.
That’s the whole calculation. The 50-day and 200-day just use longer windows.
Simple versus exponential
You’ll see two main versions.
A simple moving average (SMA) gives every day in the window equal weight. This is the version most people mean when they talk about the 50-day and 200-day averages, and it’s the default on most charts.
An exponential moving average (EMA) gives more weight to recent prices, so it reacts faster to new moves. Some traders prefer it for that reason. The tradeoff is that a faster line is also more likely to flip back and forth on small moves.
Neither is better in any absolute sense. When you read that “the stock fell below its 200-day average,” assume it means the simple one unless the writer says otherwise. If you switch to an EMA, you’ll see slightly different lines and slightly different crossovers, so be consistent.
Why the 50 and the 200
There’s nothing mathematically special about those numbers. They stuck because they’re round, they were available when charting became common, and they roughly match two useful views of the market. The 50-day captures the medium-term trend, about a quarter of the year. The 200-day captures the long-term trend, about a year.
The more important reason is that so many people use them. If large numbers of investors and institutions watch the same line, price sometimes reacts around it, simply because people place orders there. That’s partly self-fulfilling, and it’s also why the 200-day gets so much airtime in the news. The line works a bit like a shared reference point.
That doesn’t mean other lengths are wrong. Plenty of people use 20-day, 100-day, or 10-month averages. The 50 and 200 are just the most common pair.
The main ways people use them
1. As a trend filter
This is the simplest use and probably the most defensible. If the price is above the 200-day moving average, the long-term trend is generally considered up. If it’s below, the trend is considered down or at least weak.
Some investors use this as a rough guardrail rather than a trading signal. They might hold stocks when the broad market is above its 200-day average and move to safer assets when it’s below. A well-known academic-style version of this idea is Mebane Faber’s 2007 paper on tactical asset allocation, which tested a rule based on the 10-month average (very close to the 200-day) across several asset classes. The main finding people usually point to is that such a rule tended to reduce big drawdowns, though it didn’t always improve total returns, and it was tested over a specific historical period. It’s worth reading about, with the understanding that past results don’t carry over automatically.
The filter isn’t a crystal ball. It simply keeps you from fighting a strong downtrend.
2. As dynamic support and resistance
Earlier in this series we talked about horizontal support and resistance. Moving averages work like sloping versions of those levels. In a healthy uptrend, price often pulls back to the 50-day average and then continues higher. In a stronger or deeper pullback, the 200-day sometimes acts as the floor.
In a downtrend, it can work the other way around. Price rallies up to the 50-day or 200-day, stalls, and rolls over.
Remember that these are zones, not exact prices. Price might slice through the line slightly, bounce a bit above it, or ignore it entirely. A bounce from a moving average is more meaningful when it matches something else, like a prior support area or a rejection candle.
3. The golden cross and the death cross
These get the most attention, so they deserve a careful look.
A golden cross happens when the 50-day average rises above the 200-day. A death cross happens when the 50-day falls below the 200-day. The first is usually read as a bullish sign, the second as a bearish one.
The logic is that when the shorter-term average overtakes the longer-term one, recent prices are consistently higher than the older ones, which suggests upward momentum. It’s a sensible idea. The problem is timing, and that brings us to where things go wrong.
4. Reading the slope and the distance
Two quieter uses get less attention. The slope of the line shows how strong the trend is. A 200-day average that’s rising steadily tells a different story from one that’s flat or turning down, even if the price is above it in both cases.
The distance between price and the average shows how stretched a move is. If a stock is 40% above its 200-day average, it has run a long way from its long-term norm, and sharp pullbacks are more common from there. That’s not a sell signal on its own, but it’s a reminder that buying after a huge run carries more risk.
The big weakness: moving averages lag.
Every moving average is built from past prices, so by definition it reacts after the move has already started. The longer the window, the bigger the delay. A 200-day average is slow. By the time the price crosses it, a lot of the move may be over.
Golden crosses and death crosses are slower still, because they need the 50-day to travel all the way across the 200-day, and both lines are already lagging price.
A good example is March 2020. The S&P 500 fell about 34% in a little over a month as the pandemic hit, and a death cross appeared on the index around the time the market was bottoming. Traders who sold on that signal sold close to the low, and the market rebounded sharply in the following months. A golden cross showed up later in 2020, well after prices had already climbed a long way from the bottom. You can check the exact dates yourself on a daily chart of the index. The lesson is the same either way: crossovers confirm what already happened, which makes them poor timing tools.
That’s not a flaw in the indicator. It’s what the indicator is. It trades speed for smoothness. The mistake is expecting it to be both smooth and fast.
Common ways people misuse them
Treating a cross as an automatic buy or sell. A golden cross doesn’t mean “buy now,” and a death cross doesn’t mean “sell everything.” Sometimes the market continues in the signaled direction. Sometimes it reverses right after, as in 2020. These signals are best viewed as context, not commands.
Using them in sideways markets. When a price moves in a range, it crosses back and forth over the moving average again and again. Each cross looks like a new signal, and each one fails. This kind of repeated false signal is called a whipsaw, and it’s the main reason traders get chopped up using moving averages. They work best when there’s a trend to follow and poorly when there isn’t.
Expecting an exact bounce. Beginners draw a 50-day line and expect price to turn precisely on it. It rarely does. Price might stop well above, undershoot, or ignore the line completely.
Using them on very short timeframes without thinking. A 50-period average on a one-minute chart covers fifty minutes of trading, not ten weeks. The rules of thumb that apply to daily charts don’t automatically carry over. If you apply them to intraday charts, treat them as different tools and test them on their own.
Optimizing until it looks perfect. It’s easy to look back at a chart and find the moving average length that would have worked beautifully. Maybe it was the 47-day or a 9/26 crossover. That’s called curve fitting, and it tends to fall apart on new data because the “perfect” settings were chosen using results that are already known. Sticking with common settings and testing them on data you haven’t looked at is more honest.
Ignoring everything else. An average tells you about the trend. It says nothing about earnings, interest rates, news, or the broader economy. A stock above its 200-day can still fall hard on bad results.
Assuming the crowd guarantees the outcome. It’s true that many people watch these lines. That’s a reason they sometimes matter, not a reason they always will. On plenty of occasions price runs straight through them.
A balanced way to use them
The pattern across these uses is that moving averages are best at describing the environment and weakest at timing exact entries. A reasonable way to use them looks something like this.
Start with the 200-day to get a feel for the long-term picture. Is price above it or below? Is the line rising, flat or falling? That sets the backdrop.
Then look at the 50-day for the medium-term view. Is price holding above it during pullbacks, or repeatedly failing to reclaim it?
Next, combine the averages with other tools from this series. If price pulls back to a rising 50-day average and that area also lines up with a horizontal support zone and a rejection candle, you’ve got several pieces of evidence pointing at the same place. That’s more convincing than any single line.
Finally, decide how you’d be wrong before you act. If you buy a pullback to the 50-day, a close well below it, and especially below a nearby support zone, tells you the idea has failed. Place your exit based on that, and size the position so a loss is an amount you can accept.
A simple example (with made-up numbers)
Imagine a stock that has been climbing for months. Its 200-day average sits at $80 and slopes upward, and its 50-day average is at $92, comfortably above the 200-day. Price is at $100.
Over two weeks, the stock slips to $93. That’s near the 50-day line. A candle forms with a long lower wick and a close near the high of the day, showing buyers stepped in. The $92 to $93 area was also a previous resistance level that price broke through earlier, so it now has a good chance of acting as support.
Several things line up here: an uptrend (price above a rising 200-day), a pullback to the 50-day, a prior level in the same spot, and a rejection candle. A trader might consider a small entry with an exit just below $90, which would signal that the pullback had gone deeper than usual. The risk is about $3 a share. If the stock then moves back toward $100 or higher, the reward is larger than the risk.
None of this guarantees the stock goes up. The same setup fails regularly. The value of the approach is that it gives you a specific, defined place to be wrong, which keeps losses small when it doesn’t work.
What the research and experience suggest
Research on simple moving average rules has been mixed, and the results depend on the market, the period and how the rule is applied. A few points come up repeatedly. Trend-following rules based on long averages like the 200-day have often helped reduce deep losses during major bear markets. They’ve also tended to lag at turning points and generate false signals in choppy periods. Costs and taxes from frequent trading can erase some of the benefit.
So the honest summary is that these averages can be a useful part of a process, particularly for managing risk and avoiding fights with a strong trend, but they aren’t a reliable standalone profit machine. If someone sells a system built purely on a moving average crossover and promises consistent profits, be skeptical.
How to practice
You can learn a lot without risking money. Open a free charting platform and add the 50-day and 200-day simple moving averages to a daily chart of a broad index or a stock you know. Scroll back through a few years.
Look at every golden cross and death cross in the period. Note where price was when each one appeared, and what happened over the following months. You’ll probably find a mix: some crosses were followed by long trends, and others were followed by reversals or sideways drift.
Next, mark every time price pulled back to the 50-day during an uptrend. How often did it bounce? How often did it break down? Counting the results honestly gives you a more useful feel for the tool than any article can.
If you want to go further, try the same exercise on different markets and timeframes, and keep a short note of what you find. Over a few weeks, you’ll see where moving averages help and where they just add noise.
The bottom line
The 50-day and 200-day moving averages are simple tools that smooth price into a trend you can read at a glance. They’re useful for judging the broader direction, spotting areas where price may find support or resistance, and keeping you from trading hard against a strong trend.
They lag, they whipsaw in sideways markets, and they don’t predict anything. Golden and death crosses confirm what’s already happened more than they forecast what’s next. Used as context alongside price action, key levels and sensible risk management, they earn their place on the chart. Used as a mechanical buy and sell signal, they tend to disappoint.
Treat them as a way to understand the market’s mood, and let other evidence tell you when to act.