LogoLogo
Return to StockChartsCharts & ToolsArticlesChartSchoolYour Dashboard
  • đź“‹ChartSchool
  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
      • Dow Jones Select Indices
      • Dow Jones Titans Indices
      • Dow Jones US Indices
      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
      • NYSE Equity Indices
      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
      • StockCharts Theoretical Indices
      • US Treasury Yields
    • đź“–Glossary
      • đź“–Glossary - A
      • đź“–Glossary - B
      • đź“–Glossary - C
      • đź“–Glossary - D
      • đź“–Glossary - E
      • đź“–Glossary - F
      • đź“–Glossary - G
      • đź“–Glossary - H
      • đź“–Glossary - I
      • đź“–Glossary - J
      • đź“–Glossary - K
      • đź“–Glossary - L
      • đź“–Glossary - M
      • đź“–Glossary - N
      • đź“–Glossary - O
      • đź“–Glossary - P
      • đź“–Glossary - Q
      • đź“–Glossary - R
      • đź“–Glossary - S
      • đź“–Glossary - T
      • đź“–Glossary - U
      • đź“–Glossary - V
      • đź“–Glossary - W
      • đź“–Glossary - X, Y, Z
    • Options Glossary
    • Educational Resources
Powered by GitBook
LogoLogo

ON STOCKCHARTS

  • Charts & Tools
  • Articles
  • StockCharts TV
  • ChartSchool

MEMBERS

  • Your Dashboard
  • Your ChartLists
  • Advanced Scans
  • Technical Alerts

HELP

  • Support Center
  • FAQs
  • Contact Us
  • Pricing

COMPANY

  • About Us
  • What's New
  • Careers
  • StockCharts Store

© StockCharts.com, Inc. All Rights Reserved.

On this page
  • The Importance of Support and Resistance
  • Why the 50-Day and 200-Day SMA?
  • How to Go Long on the Bounce
  • Example of a Long Trade
  • What About the Short Side?
  • The Bottom Line

Was this helpful?

Export as PDF
  1. Table of Contents
  2. Trading Strategies & Models
  3. Trading Strategies
  4. Moving Average Trading Strategies

Finding Support and Resistance in Moving Averages

PreviousMoving Average Trading StrategiesNextGuppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand

Last updated 11 months ago

Was this helpful?

When you watch experts on financial TV talk about the ups and downs of stock prices, you may often catch them referencing the 50-day or 200-day moving average. And when they talk about either, it usually has something to do with the direction of the trend or anticipation of a price bounce:

“Prices are above the 50-day moving average, so the uptrend remains intact.” “Wait for the price to bounce off the 50-day (or 200-day) before you buy.”

The Importance of Support and Resistance

Moving averages—particularly the 50-day and 200-day simple moving averages (SMA)—help traders gauge the direction of a trend and serve as support and resistance. We’ll look at MA bounces, why traders expect them, and how to use them in trading.

The chart below shows how price tends to bounce off the moving averages, making them act like support or resistance levels.


Why the 50-Day and 200-Day SMA?

Financial media will have you thinking that the 50-day and 200-day SMAs are like the EKGs of the market. But why? Here are a few reasons, and there’s really no magic to it at all.

  • Popularity contest. The 50-day and 200-day SMAs are popular indicators that can create buying or selling pressure due to crowd mentality.

  • Market sentiment. Both SMAs are psychological barriers that can affect market sentiment. A stock above its 50-day SMA (or 200-day SMA, depending on the trader) is seen as strong, while a stock below it is seen as weak.

  • The 200-day is an institutional benchmark. Large institutional investors use the 200-day SMA to benchmark investments. Their actions can move markets, creating significant price reactions.

  • Measuring trend strength. The 50-day and 200-day SMAs, particularly in combination, help measure trend strength. When the 50-day is above the 200-day and in a full-sail position, it indicates a strong uptrend. When both are flattening, the combination indicates a weakening trend. When the 50-day is below the 200-day in full-sail, it’s a strong downtrend.

How to Go Long on the Bounce

Here are a few rules for trading a bounce off either the 50-day SMA or the 200-day SMA.

Step 1—Identify the Uptrend. The 50-day should be above the 200-day. The stronger the upward curve of both MAs and the wider the distance between them, the better. You might also consider using StockCharts’ Technical Rank (SCTR) report (for more info on SCTR, read this).

Step 2—Wait for the Pullback. Wait for the price to pull back toward the 50-day SMA. If price breaks below the 50-day, wait for it to pull closer to the 200-day SMA. You're essentially waiting for the market to take a breather.

Step 3—Spot the Bounce. Look for a bullish price action signal at or near the 50-day SMA (or 200-day SMA). You’re looking for a bounce that has enough momentum to continue upward. In this case, you might want to look at chart patterns and other indicators (such as a Fibonacci retracement or historical support, for example) to confirm the likely strength of the bounce and resumption of the uptrend.

Step 4—Enter a “Long” Position. When and where you buy is up to your preferred strategy. You might buy a breakout of the top of the candle that had the bounce. You might even consider buying right away or at the opening of the next day’s trading session. Your entry point is a personal choice. Equally important, however, are your exit and stop-loss points.

Step 5—Place Your Stop Loss. If you buy a bounce off the 50-day SMA, you might place your stop a few points below the 50-day or the 200-day. But whether you’re buying a bounce off the 50 or 200, you might want to consider levels below the 200-day as your “uncle point” especially if there’s strong historical support or a strong Fib retracement below the 200-day SMA.

Step 6—Determining Your Profit Target. As far as profit targets, this depends on your strategy or personal preference. You may aim for a 2:1 reward-to-risk ratio, a measured move, or a higher resistance level.

Example of a Long Trade

In February, Microsoft's stock price rose above both the 50-day and 200-day moving averages, indicating a bearish trend. This rally occurred at the same time as the SCTR score rose above 50.

Notice how the market considered the 50-day simple moving average (SMA) as a support level, as buying occurred every time the price declined towards the line, causing MSFT to bounce off the 50-day SMA. In late July, MSFT prices broke below the highest swing low. In addition to closing below the 50-day SMA, this signaled an end to the short- to intermediate-term uptrend. The key question is whether the price will bounce off the 200-day simple moving average (SMA). If it does, the uptrend could be considered intact. However, if the price closes below the 200-day SMA, it could end the longer-term uptrend, leading to a sideways market, a reversal, or a resumption of the uptrend if the fundamental context supports it.

What About the Short Side?

These rules also apply to going “short” the market. It’s the same rules as above but in reverse.

The Bottom Line

When navigating the intricate waves of the stock market, traders often look for lighthouses to guide their decisions—and the 50-day and 200-day Simple Moving Averages (SMA) stand tall in this regard. Acting as both gauges of trend direction and psychological barriers, these SMAs wield significant influence over market sentiment and action. Their importance is further underscored by the attention they receive from institutional investors.

By understanding the dynamics of these averages and employing the strategies outlined, both for going long and short, you can enhance your trading toolkit. But as with all trading strategies, you should combine this knowledge with other tools and indicators and always keep risk management in mind. In the end, while the market's waters can be unpredictable, anticipating turning points can certainly help set you on a course for success.

When prices bounced off the 50-day SMA twice, this indicated that a potential bullish reversal was underway. Trading a breakout of the swing high might have made for a good “long” entry point. We also anticipated a event, which would have supported the technical bullish context.

Golden Cross
Moving averages to find support and resistance levels using StockCharts
Moving averages as support and resistance levels using StockCharts