200 Day Exponential Moving Average(EMA), is an important indicator in technical analysis. The 200 Day EMA is a long term moving average that helps determine overall strength of an index or a stock. It is generally used as a trend following indicator, which do not predicts market direction, but rather gives an idea about the current direction.
Why is 200 Day Moving Average important?
An index that is trading below its 200 DMA is considered to be in a long term downtrend and when it is above, it is in an uptrend. Whenever the index or a stock trades near these averages, they attract support in a bull market and finds resistance in a bear market. Currently, the 200 Day EMA of Nifty is around 9500 and the index Nifty 50 is around 10,450, which is good 1000 points above the 200-day EMA.
The following table may be of helpful, which shows the 200 DEMA and the current market prices of the Nifty and Nifty-50 stocks. These levels for the nifty index and stocks can be used as an guide to decide the major trend of the index or the stocks. Hence watch out these levels to make your trading decisions better.
If fact, the 200-day moving average may act as support or resistance simply because it is so widely used. It is almost like a self-fulfilling prophecy. The advantage of using moving averages is they are trend following and these indicators are always lagging, This lag factor not necessarily be construed as a disadvantage, but can be used viewed as a supportive factor to identify that whether a trader is line with the current trend or not.
For a trader, trend is your friend, isn’t it?