FREE

Get The Ultimate Guide to Price Action Trading

  • How to decode what the markets are telling you so you can identify high probability trading setups—consistently and profitably
  • How to identify hidden strength and weakness in the markets so you can “predict” market reversals before the crowd
  • A simple trading strategy that allows you to profit in bull & bear markets (without any indicators)
__CONFIG_colors_palette__{"active_palette":0,"config":{"colors":{"62516":{"name":"Main Accent","parent":-1}},"gradients":[]},"palettes":[{"name":"Default Palette","value":{"colors":{"62516":{"val":"var(--tcb-color-0)","hsl":{"h":20,"s":0.99,"l":0.01}}},"gradients":[]}}]}__CONFIG_colors_palette__
Yes, Give it to me

The 200 Day Moving Average Strategy Guide 

Last Updated: June 30, 2020

By Rayner

The 200 day moving average (MA) is one of the most followed indicators.

Just tune in to financial news and you’ll hear stuff like…

“The S&P has broken below the 200 day moving average — it’s a bear market!”

“You should buy when the price cross above the 200 day moving average.”

“Apple just closed below the 200MA — time to sell.”

But here’s the thing:

How does it help you as a trader?

It doesn’t.

Instead, it toys on your emotion and causes you to buy/sell at the wrong time.

But don’t worry, we’re going to change all that.

Because in today’s post, you’ll discover…

Sounds good?

Let’s get started now….

What is the 200 day moving average and how does it work?

The Moving Average (MA) is a trading indicator that averages the price data, and it appears as a line on your chart.

Here’s how it works…

Let’s assume over the last 5 days, Apple shares closed at 100, 90, 95, 105, and 100.

So, the 5-period MA is [100 + 90 + 95+ 105 +100] / 5 = 98

And when you “string” together these 5-period MA values together, you get a smooth line on your chart.

Now the concept is the same for the 200 day moving average.

The only difference is you look at the last 200 days of price data which gives you a longer-term moving average.

Here’s how to plot 200 day moving average (on TradingView):

And here’s how it looks like: A 200 day moving average chart

20 day moving average

Now, there are different types of moving average like exponential, simple, weighted, etc.

But you don’t have to worry about it because the concept is the same (only the way it’s calculated is slightly different).

Let’s move on…

How to use the 200 day moving average and increase your winning rate

Here’s the thing:

The 200 day moving average is a long-term indicator.

This means you can use it to identify and trade with the long-term trend.

Here’s how…

If the price is above the 200 day moving average indicator, then look for buying opportunities.

If the price is below the 200 day moving average indicator, then look for selling opportunities.

An example:

Pro Tip:

If you’re trading stocks, you can refer to the index to get your trend bias.

So if the S&P 500 is above the 200 day moving average, then look for buying opportunities on US stocks.

This simple technique will increase your winning rate and reduce your drawdown.

How to better time your entries when trading with the 200-day moving average indicator

You’re probably thinking:

“Okay it’s not difficult to identify the trend. But when is the right time to enter a trade?”

Here are a few techniques you can use…

  1. Support and Resistance
  2. 200MA bounce
  3. Ascending triangle
  4. Bull Flag

I’ll explain…

1. Support and Resistance

Support — an area on your chart where potential buying pressure could step in.

Resistance — an area on your chart where potential selling pressure could step in.

So, if the price is above the 200 day moving average, you can look for buying opportunities at Support.

Or if the price is below it, you can look for selling opportunities at Resistance.

Here’s what I mean…

2. 200MA Bounce

In a weak trend, the 200 day moving average can act as an area of value.

You’ll notice the price approach the 200MA and then “bounce” away — and this presents an opportunity to enter the markets.

Here’s an example:

Pro Tip:

You get higher probability trades when the 200MA also coincides with nearby Support/Resistance.

3. Ascending Triangle and Descending Triangle

The Ascending Triangle is a bullish chart pattern.

It’s a sign of strength as the buyers are willing to buy at higher prices (despite coming into Resistance).

So in an uptrend (the price above 200MA), you can look for an Ascending Triangle and buy the breakout.

And in a downtrend, look for a Descending Triangle and short the breakdown.

An example:

Pro Tip:

The longer the Ascending Triangle takes to form, the stronger the breakout.

4. Bull Flag

The Bull Flag is another bullish chart pattern.

It’s a sign of strength as the buyers are in control and the sellers have difficulty pushing the price lower (that’s why you have small bodied candles on the pullback).

So in an uptrend, you can look for a Bull Flag pattern and buy the break of the highs.

And in a downtrend, look for a Bear Flag pattern and short the break of the lows.

Here’s what I mean…

Pro Tip:

The best flag pattern to trade is when the price just broke out of a range (usually the first pullback).

200-day moving average: How to ride massive trends without getting stopped out on the retracement

Here’s a fact:

If you want to ride massive trends in the market (the kind that gets other traders drooling), then you must give your trade room to “breath”.

Having a tight trailing stop loss won’t cut it.

Instead, you must give it a buffer.

And one way is to trail your stop loss with the 200-day moving average.

This means if you’re long, then you’ll only exit the trade when the price closes below the 200MA.

Or if you’re short, then exit the trade only when the price closes above the 200MA.

Here’s what I mean…

Pro Tip:

If you want to ride short-term trends, you can trail with the 20MA.

If you want to ride medium-term trends, you can trail with the 50MA.

How to identify the correct market cycle so you don’t get caught on the wrong side of the move

Here’s a fact:

The market is always changing.

It moves from a range to trend, trend to range, and etc.

You can break it down into 4 stages:

  1. Accumulation
  2. Advancing
  3. Distribution
  4. Declining

I’ll explain…

(This is important so please study it)

1. Accumulation stage

The accumulation stage occurs after a downtrend.

It looks like a range market with obvious Support & Resistance.

You’ll see the 200MA flatten and the price might “whipsaw” around it.

This tells you the buyer and sellers are in equilibrium and the market is undecided.

Here’s an example:

Now…

In an accumulation stage, the market could break out in either direction.

If it breaks down lower, the downtrend continues (and you can look for shorting opportunities).

But if it breaks higher, then it’s the start of an uptrend which brings us to the next stage…

2. Advancing stage

The advancing stage occurs when the price breaks out higher of the accumulation stage.

It looks like an uptrend with higher highs and lows.

At this point, you’ll see the price above the 200MA and the 200MA starts to point higher.

Here’s an example:

Now…

In the advancing stage, the path of least resistance is towards the upside, so you want to be a buyer (not a seller).

There are a few ways you can trade the advancing stage…

  • Buy the first pullback of the accumulation stage
  • Wait for a pullback towards previous Resistance turned Support
  • Look for a pullback towards the Moving Average

If you want to learn more, check out The Trend Trading Strategy Guide.

Next…

3. Distribution stage

Here’s the thing:

Markets don’t go up forever.

Eventually, sellers would come in to push the price lower.

And the first sign of weakness is in a distribution stage.

It looks like a range market in an uptrend and you’ll see the 200MA flatten and the price might “whipsaw” around it.

This tells you the buyer and sellers are in equilibrium and the market is undecided.

Here’s an example:

Now…

In a distribution stage, the market could break out in either direction.

If it breaks out higher, the uptrend continues (and you can continue to look for buying opportunities).

But if it breaks lower, then it’s the start of a downtrend which brings us to the next stage…

4. Declining stage

This is the final stage of the market cycle.

The declining stage occurs when the price breaks down of the distribution stage.

It looks like a downtrend with lower highs and lows.

At this point, you’ll see the price below the 200MA and the 200MA starts to point lower.

Here’s an example:

Now…

In a declining stage, the path of least resistance is towards the downside, so you want to be a seller (not a buyer).

Likewise:

A declining stage doesn’t go on forever.

It’ll come to a point where the price is low enough to attract buyers.

And that’s where the market transit back to stage 1 — the accumulation stage.

One last thing…

The 4 stages of the market is more art than science.

Sometimes it’s not clear which stage the market is in.

When that happens, your best bet is to move on to another market which makes more sense.

Conclusion

Here’s what you’ve learned today:

  • The 200 day Moving Average (MA) is a long-term trend following indicator
  • You can use the 200MA as a trend filter. Look for buying opportunities when the price is above it and selling opportunities when the price is below it
  • You can time your entries by trading at Support and Resistance, Moving Average, or chart patterns
  • You can trail your stop loss with 200MA and ride massive trends
  • The 200MA helps you identify the 4 stages of the market so you can better time your entries and exits

Now here’s what I’d like to know…

How do you use the 200 day moving average in your trading?

Leave a comment below and share your thoughts with me.

  • Hey hey what’s up my friend.

    Nice one Rayner.

    Kindly look at number 4 – declining stage; I believe you meant the 200MA should be pointing lower and price below it.

    Cheers man!

  • Your style of teaching is with a difference – down to earth. I will want you to mentor me in becoming a successful trader.

  • You are very genuine, and the best by far! Keep it up and you will surely have many million followers pretty soon. Thanks a lot for breaking down apparent complex problems/challenges to simple understandable steps!

  • What you mentioned is for a Daily Trade pattern for Long term. If I trade on M15 or H1, should I just look at 20MA or 50MA? Thanks!

    • There’s no best MA to look at irrespective of the timeframe.

      It depends on your goals and what you want to use the indicator for.

      A 200MA on the 1-hour timeframe is simply an 8MA on the daily timeframe (200 / 24).

  • Hi Rayner. I’m a newby still doing Demo Account. I have really been struggling, until I am across your site. I religiously studied all your material. Then started Demoing again, what a difference. I’ll demo for two more months, then go live on a small account. Living in South Africa the end of day New York charts is midnight for us. I get up every morning at 05 00 and do my trading. Any other suggestions. ta James

    • 1. You can sleep a little after midnight after new york close.

      2. Trade other markets which have a more favorable timezone.

      3. Trade other timeframes besides the Daily.

  • I have been following yoy for quite some time now. Your teachings are quite spectacular. Thanks Rayner you taught me a lot.

  • if u use the 200ma on the dax german30 it was well under the 200 ma before x mas so i shorted but it did the opposite it went up from jan till now making 200ma not very usefull have a look at chart

  • i would like to know how to set a stop loss and take profit once you enter a trade at support/resistance level with price above or below 200MA and what time frame is suitable for this strategy also is a 200 SMA or 200 EMA

  • Rayner, your explanations are great, but you didn’t give an explanation on how to exit for intraday traders. Some of us have equity that only allows for intraday trading, I find that when/if I enter a trend using all you’ve explained, I don’t know how to exit or when to exit within the same day. This has been my challenge. How do I set take profit targets as an intraday trader?

  • Hello Ryner,
    I use the 200 Day EMA as a trend indicator, whether i should basically buy or sell. Even in smaller time units, i allways pay attention to the 200 day Ema to identify the main trend. So i can see in smaler units of time well pullbacks and enter the short term.

  • Nice explanation God bless you
    Please how do I trail with the 200MA, Do I have to measure from current price to the 200MA and trail with the points in the measurement?

  • Hi, coach Rayner (yes, I’m claiming you as my coach LOL). Thanks for the information you are sharing on your blog and your YouTube channel. I am really learning a lot from them. You are the real deal! Keep it up!

  • My man you really know your stuff, as a newbie this has been an eye opener for me…as someone who just started out, having you on my corner its gonna be fast learning trip

  • I am so grateful for your advise and teachings. I have been off and on trading but I decided to full stick to it and I feel lucky to come across this website. Thank you so much.

  • Great guide.i find out very informative.thats why many had envy you and even discredit in some of the review online and saying that you are a joke and scam. thank you Rayner for sharing your knowledge to many novice trader like me. Your unconditional sharing helps us a lot and made our trading better than before.

  • Hey Rayner,

    I tried 200EMA strategy on “30mins”time frame for Intraday trading
    (day trading) but I observed If you miss correct entry time then It nothing worthful. How to fix it?

  • On my mt4,I go to settings,click on the(f)sign,scroll through and select MA. On the MA,I adjust the period to 200 and finally click OK.
    Now when price is above it,its a signal to look for long buying positions, but when price is below it,its a signal to look for a selling positions. I can choose to go long or short in either case .

  • Wow Rayner fantastic ,I love more ur teaching intelligent, thank u Rayner, Rayner is our future Rain money in our account confirm .

  • Thank you for this lesson..
    Your lessons have been so much inspiring and helping…I cant wait to get on with your Pro package…Much love from Nigeria

  • Thank you Rayner. Your No BS advice has helped me so much. I’m new to trading at 64 years old, but reading your articles has given my confidence a great boost. Thank you again. Tom in Dublin

  • Three reasons why I wasn’t successful in trading.

    1. I didn’t listen to you!
    2. I didn’t listen to you!
    3. I didn’t listen to you!

    Hmmmmmm……

    Rayner, you are truly a blessing to all traders that are beginning and Confused!!! God Bless! I finally have a light at the end of the long dark tunnel I’ve been blindly crawling through.

    Warmest Regards

  • I use the 200 on the 5 minute chart. I either trade a bounce off the 200 or I use it as a profit taking target when the chart shows a reversal signal that will return to home base, usually after the 20 and 50 flatten and have been broken and the price is far departed from the 200.

    For a 200 day MA strategy, I would not trail my trade with the 200, as most of your earnings will be eaten by the time it crosses the 200 to exit. I don’t hold a trade that long 🙂 I’d maybe trail it with the 50 or the 20 after a bounce off the 200. That applies to all time frames I might trade, although 5 minute is my current favorite.

    5 minute let’s me get out of the market after a couple hours of trading and not worry about what happens overnight. Stress free. 10-40 pips a day is all I look for.

    I often toy with the idea of adopting longer term strategies. Especially when I read your articles talking about 4 hour chart etc. But I don’t think I’m brave enough to enter with that high a risk on forex. The price doesn’t seem to get out of it’s danger zone fast enough. 5 minute allows me to enter with 10-50 pip potential, and I never lose more than 10 pips on a good trade that failed. Even if my trade was incorrectly entered and I’m long instead of short by mistake, I still won’t lose more than 20 pips. 25 if the market really wants to teach me a lesson. But entering a 4 hour chart signal I could lose 100 pips if I’m wrong, and usually the 4 hour signal that attracts me doesn’t show up when I’m looking at the chart. But on 5 minutes I always find 1-3 trades between 8-11am New York time.

    I do find it frustrating though that many big moves seem to happen between 4-6am during EU trading hours while I’m asleep. I miss gorgeous entries that make 70 pips while sleeping and trade the scraps at the end of the EU trading day. But I don’t plan on trading at 4am so it is what it is.

    Love your articles and information! A lot of it has made me a much better trader these past few months! Your website has been a blessing.

  • Hello Rayner, your write-ups on Moving Average and others, have been helpful. I look forward to reading more and as well, to meet you. You have being a lovely development to Forex Trading, its bunch of beginner and even the professionals that still holds their Trading fundamentals very essential. My humble regards to all your splendid works! Cheers.

  • I’m in big confusion regarding Ascending and descending triangle . In some books Ascending triangle is mentioned as bearish and vice versa . I’ve also backtested and found that descending triangle break out at major supports in the higher side gives great upward moves ! Pls clarify

  • Hi Rayner,

    If the Pullback Stock Trading System goes for free, why do we still to pay a printed version to be delivered and not distribute through a downloadable PDF copy? I am sure this should be a better distribution channel and environmental friendly. It would be just like your other materials made available to us via the latter channel.

    I hope you can revert and allow us to download this precious treasure soonest. Your effort to share and prepare these materials and supporting advice shall not go unnoticed!

    We appreciate your attention and understanding on the matter.

    Thanks.

  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
    >