Why the 50-Day Simple Moving Average Is Popular Among Traders

The 50-day simple moving average (SMA) is popular with traders and market analysts because historical analysis of price movements shows it to be an effective trend indicator.

The 50-, 100-, and 200-day moving averages are probably among the most commonly found lines drawn on any trader's or analyst's charts. All three are considered major, or significant, moving averages and represent levels of support or resistance in a market.

What Is the 50-Day Simple Moving Average?

The 50-day simple moving average is a trendline that represents the daily plotting of closing prices for a stock, averaged over the past 50 days.

Depending on a stock's current price action and where it appears relative to the 50-day simple moving average, this trendline can indicate a stock's strength or weakness.

It's called simple because it weights each day's closing price the same. This contrasts with the exponential moving average (EMA), which weights recent closing prices more heavily.

Understanding the 50-Day Simple Moving Average

The 50-day moving average is the leading average of the three most commonly used averages. Because it's shorter than the 100- and 200-day averages, it's the first line of major moving average support in an uptrend and the first line of major moving average resistance in a downtrend.

The 50-day moving average is popular because it works well as a trend indicator. The more accurate a moving average is, the more useful it is for traders and analysts.

The ideal moving average is a trendline that price will not likely violate on a mere temporary retracement (possibly giving a false market reversal signal if it does). It can also be used to place a trailing stop on an existing market position.

Additionally, the a moving average can be helpful because stocks that approach it on retracements can signal additional market entry points. Through trial and error using various moving averages, the 50-day moving average has served these purposes well.

In a sustained uptrend, a stock's price generally remains above the 50-day moving average, and the 50-day moving average remains above the 100-day moving average. If the price moves significantly below the 50-period moving average, and especially if it closes below that level, it is commonly interpreted by analysts as signaling a possible trend change to the downside. The 50-day moving average crossing below and remaining below the 100-day moving average gives the same signal.

Long-term trend traders commonly use the 50-day SMA, whereas intraday stock or forex traders often employ a 50-day exponential moving average on a one-hour chart.

Disadvantage of the 50-Day Simple Moving Average

The key downside to the 50-day moving average is that it uses historical data. That means it can respond slowly when prices change quickly. There are times when the market tends to follow moving average support and resistance levels.

While the 50-day SMA is easy to compute, some traders rely on more sophisticated metrics like exponential moving averages, which place more weight on recent price closes.

The 50-day average can perform well during strong market conditions. In unpredictable or choppy markets, the same can't necessarily be said. Some of the resulting uncertainty can be mitigated by adjusting the moving average time frame.

The Bottom Line

The 50-day simple moving average is popular among traders because it charts the average trend of an asset's price movement, without including the noise of daily price fluctuations. However, it can react slowly to sharp price changes, and some traders rely on more sophisticated moving averages for technical analysis.