An Insight into 50-Day Moving Average
When you deal with stock options trading you are required to know about strategies and technical indicators related to the trade. 50-day moving average is one of the technical indicators of the stock market, which you can use to analyze price trends and fluctuations in the economic market. More specifically, when you buy company's stock option, the average closing price of the underlying security over the last fifty days is termed as 50-day moving average. An Easy Calculation With a simple calculation you can get the 50-day moving average (MA) figure. Add up the closing prices starting from day 1 and continue it up to the 50th day; once you get the sum total, divide it by the number 50 to get the average result.
High & Low MA Reading Apparently it seems that a high 50-day MA forecasts an optimistic trend (suggesting a bullish market) and a low reading predicts a pessimistic trend (suggesting a bearish market). On the contrary, it is just the reverse. A high reading of fifty day moving average is a warning bell for you, because the market might take a downside turn. So, the conclusion is too much optimism on the part of traders and investors is not desirable. On the other hand low MA indicates just the reverse of high MA. In a scenario of high MA, the stock options market hardly seems to take in new buyers. Short-term Average & Long-term Average Moving averages are calculations that predict the trend and momentum in the market.
Both long-term and short-term averages can be used by you as essential indicators of the market. A short-term average usually spans a time of 15 days and a long-term average spans a longer duration like 50 days. When short-term MA crosses the figure of long-term MA, the market seems to experience an upward momentum. A downward momentum in the market takes place when short-term crosses below long-term average. You are likely to see a change in the market sooner with a shorter moving average. You can consider moving averages as determinants of a wise financial move ( you can judge right time to invest and assuage the profitable entry and exit point related to specific securities). You can take account of the overall health of the stock market, since 50-day MA is considered as the dividing line between a technically healthy stock and an unhealthy stock. Hence, you can use fifty day MA for technical analysis of the price movement of the market, reflecting the average value of price of a security over a set time frame.