PShould I sell my stock when the price declines past its 200-day moving average?
This is a classic “sell signal” for technical analysts. Technical analysis analyzes stocks based on past price movements, rather than looking at the underlying fundamental merits of the company. The 200-day moving average signal assumes that the trend or the overall direction of the stock price is the real driving force behind the price movement: “The trend is your friend.” A 200-day moving average is the sum of the closing stock prices over the past 200 trading days divided by 200, which smoothes the daily price fluctuations to provide a longer-term indication of price movement. The signal assumes that if the current price crosses under the 200-day moving average, a change in the trend of the stock price has occurred, and warrants a sale of the stock. Many investors swear by this basic rule. However, research does not support the use of moving averages.
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- PShould I sell my stock when the price declines past its 200-day moving average?
