The 200-day moving average (MA) is one of the most used tools by forex traders for detecting a long-term market trend. According to the technical analysis, when the price level coincides with the 200-day MA a major support level is usually identified when the is above the 200-day SMA, while it is seen as a resistance level when it is below the 200-day MA. The 200-day MA is a ready-to-use tool mainly (but not only) applied to daily charts. In this case, it covers the previous 40 weeks of trading, is commonly used in forex markets to detect the general market trend. As long as an exchange rate stays above the 200 MA on the daily time frame, the currency pair is considered to be in an overall uptrend. An alternative to the 200-day MA is a 255-day MA, which covers the entire previous year. From a strategic point of view, the 200-day MA, also known as ‘slow MA’ is often used in conjunction with other, shorter-term MAs (also known as ‘fast MA’) to assess the strength of the trend as indicated by the distance between MA lines. The 200-day MA is considered such a critically important trend indicator that the event of the 50-day MA crossing to the downside of the 200-day MA is referred to as a “death cross,” signaling a serious bear forex market. Likewise, the 50-day MA crossing over to the upside of the 200-day MA is nicknamed a “golden cross,” referring to the fact that a currency is considered “golden,” or nearly sure to increase once that happens. It is possible there is also something of a self-fulfilling prophecy aspect to the 200-day MA; markets react strongly in relation to it partially just because so many traders attach so much importance to this rule of thumb.
The importance of the 200-day MA in Forex markets
