Why every investor should pay attention to the 200 day MA

200 Day Moving Average (Part 1)


With all the talk over the past couple years on how Buy And Hold is dead (whether you believe that or not), I think it's prudent to at least re-examine your rules for when to buy and when to sell so you can maximize your own profits or avoid steep losses.


Most individual investors just hold their stocks through downtrends thinking that over the long term the stock market will appreciate. I am here to challenge that viewpoint and perhaps give you a simple alternative that can save you a lot of losses in any recession. If you a trader, you probably know everything about moving averages, but most individual investors don't even pay attention to them. I think this is a mistake.


Ask anyone on the Street, and they will tell you that today's stock market is driven largely by technical patterns. One of the most basic indicators that everyone on the Street looks at is the 200 day moving average of the S&P 500. This is largely considered a key technical long term trend indicator of the overall market.  If the S&P 500 is above its 200 day moving average, it is bullish for the overall market. If the S&P 500 is below its 200 day MA, it is overall bearish for the market.


Before we examine why the 200 MA is so important, I need to emphasize one of the rules of investing and trading that most novice investors don't understand:  "NEVER LOSE MONEY".
That was not an attempt to be facetious.... Although don't take it too literally either.  Not every investment or trade will be a winner. Not even the best traders/investors in the world can achieve that.  The universal key to profits is knowing when to cut your losses.... and to do so quickly before losses stack up.  This is largely regarded as the #1 mistake novice investors make. They hang on to the stocks thinking that the market or their stock will recover eventually.... until the market just gets sooo bad, that they can't take the pressure anymore and they sell their stocks in a panic for a substantial loss. Sound familiar?  I've been there myself in the past.  This should be your #1 goal to avoid this scenario at all costs because it can literally kill your portfolio in a heartbeat.


So how does this have anything to do with the 200 Day Moving average?  Well, as I will demonstrate (in part 2), the 200 Day Moving average is the simplest way I know that investors can avoid having their portfolios decimated in a recession.... guaranteed... if you use it correctly.  It can enhance your long term returns so much, that you will be overjoyed compared to the LT Buy & Hold methology of the past 10-20 years.  Not only that, but the best part is you only need to spend a few short minutes a week pulling up a Yahoo Finance chart.


Part 2 coming soon.