The average is a simple and effective indicator that showcase the price trends. However, it is challenging to indicate smaller price movements, but it will deliver considerable market indications if it’s combined with a long-term moving average.
Let’s look at the importance of the 50-day moving average listed below:
Many traders look at this type of average as a reliable and helpful benchmark of resistance and support. While this average provides a historical view of price action, it also fluctuates in the prices investors have purchased and sold the assets for in the last ten weeks.
It shows the trend and range of price movement. Secondly, the points of resistance and support that lie along the 50-day line are often respected by the daily trades.
These points do not break easily, and prices bounce back from the support levels or pull back from the resistance levels aligned on the moving average line.
Due to this, it offers a great entry and exit point for traders, with few opportunities.
Many investors use this moving average as the support level where they purchase stocks when prices fluctuate in the demand zone. A demand zone means a zone where the prices pull back from the below support level as many buyers enter at this point, the price rise and again above the 50-day moving average. This moving average over 50 days provides a realistic support level.
When prices begin to fall on entering the supply zone or by enough buying force, several traders place stop orders to short securities and breach the moving average of 50 days.
The upper ceiling of the supply zone coincides with this average. Since 5-day moving average usually coincides with the top of the range at which stocks are trading.
It takes enough purchasing force to break the resistance levels, which makes it a reliable level of resistance to place exit trades.
A simple moving average like this one is an effective way for placing entry and exit points because it uses the price principle.
A good day moving average reflects a level that prices do not frequently break. However, because of the range and duration, the prices along the 50-day moving average do not break out easily.
So it’s unlikely that minor discrepancies will cause a breach of support or resistance levels, avoiding giving off false market signals.
