Techniques & Applications Behind The 50-Day EMA (INTC, AAPL).

This makes sense when taking into consideration that the 50-week EMA specifies suggest reversion over an entire year while the 50-month EMA tracks even more than 4 years of market activity, approaching the typical length of a normal business cycle. Price activity after that entered a 2 month game of 50-200 pinball, going across even more than 75 points between new resistance at the 50-day EMA and also lengthy term support at the 200-day EMA. Or play a game of pinball, trading oscillations in between the 50-day EMA and also longer term 200-day EMA.

This makes sense when considering that the 50-week EMA defines indicate reversion over an entire year while the 50-month EMA tracks even more than four years of market task, coming close to the ordinary length of a typical service cycle.

50-200 Day Pinball

Fast patterns in both instructions often tend to raise the splitting up between the 50 and also 200-day EMAs. Cost action then got in a 2 month video game of 50-200 pinball, passing through even more than 75 points in between new resistance at the 50-day EMA and also lengthy term assistance at the 200-day EMA.

The Bottom Line

The 50-day EMA determines an all-natural mean reversion level for the intermediate time frame.

The 50 and 200-day EMAs have morphed from narrow lines into broad zones in the last two decades due to aggressive stop hunting. (For related reading, see: Stop Hunting With The Big Forex Players). You need to consider how deep these violations will go before placing a stop or timing an entry at or near the moving average. Patience is key in these circumstances because testing at the 50-day EMA usually resolves within three to four price bars. The trick is to stay out of the way until a) the reversal kicks in or b) the level breaks, yielding a price thrust against your position.

Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)

The risk of getting it wrong will hurt your wallet, so how long should you stick around when price tests the 50-day EMA?  While there’s no perfect way to avoid whipsaws, examining other technicals often pinpoints the exact extension of a reversal. For example, Intel (INTC) returned to the January high in April and sold off to the 50-day EMA. It broke support, dropped to the .386 Fibonacci rally retracement and bounced back to the moving average in the next session. (For related reading, see: Top 4 Fibonacci Retracement Mistakes To Avoid). The stock regained support on the third day and entered a recovery, completing a cup and handle breakout pattern.

50-Day Fractals

The moving average works just as well in lower and higher time frames. As a result, day traders will find benefit in placing 50-bar EMAs on 15 and 60 minute charts because they define natural end points for intraday oscillations. Just keep in mind that noise increases as time frame decreases, lowering its value on 5 and 1 minute charts.  On the flip side, the indicator shows excellent reliability on weekly and monthly charts, often pinpointing exact turning points in corrections and long term trends.

This makes sense when considering that the 50-week EMA defines mean reversion over an entire year while the 50-month EMA tracks more than four years of market activity, approaching the average length of a typical business cycle. Market timers can use these long-term moving averages to establish profitable positions lasting for months or years while violations offer perfect levels to take profits and reallocate capital into other long term instruments.

Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)

Apple (AAPL) set up excellent buying opportunities at the 50-month EMA in 2009 and 2013. It broke moving average support in September 2008 and spent 5 months grinding sideways before remounting that level in April 2009, issuing a “failure of a failure buy signal that yielded more than 80 points over three years. It tested the moving average a second time in 2013, spending four months building a double bottom that triggered a 100 percent rally into 2014. Note how the lows matched support perfectly, offering an incredible low risk entry for patient market players. (For related reading, see: Analyzing Chart Patterns: Double Top And Double Bottom).

50-200 Day Pinball

Fast trends in both directions tend to increase the separation between the 50 and 200-day EMAs. Once a countertrend breaks one of these averages, it often carries into the other average, setting up a few rounds of the 50-200 “pinball” strategy. Swing traders are natural beneficiaries of this two-sided technique, going long and then short until one side of the box gives way to a more active trend impulse.

Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)

Biogen (BIIB) hit a new high in March after a long uptrend and entered a steep correction that broke the 50-day EMA a few days later. Price action then entered a two month game of 50-200 pinball, traversing more than 75 points between new resistance at the 50-day EMA and long term support at the 200-day EMA. Swing reversals took place close to target numbers, allowing easy entry and relatively tight stops for a triple digit stock.

Bullish and Bearish Crossovers

The downward crossover of the 50-day EMA through the 200-day EMA signals a death cross that many technicians believe marks the end of an uptrend. An upward crossover or golden cross is alleged to possess similar magic properties in establishing a new uptrend. In reality, numerous crisscrosses can print in the life cycle of an uptrend or downtrend and these classic signals show little reliability. 

Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)

It’s a different story with the 50 and 200-week EMAs. SPDR S&P Trust (SPY) shows four valid cross signals going back 15 years, two in each direction. More importantly, there were no false signals during this time, which included three bull markets and two bear markets. (For more, see: How Do Experienced Traders Identify False Signals In The Market?). Looking at historic Dow Industrial data, the last invalid cross occurred more than 30 years ago, in 1982. (For further reading, see: Understanding And Playing The Dow Jones Industrial Average). This tells us that golden and death crosses deserve a respected place in market analysis.

The Bottom Line

The 50-day EMA identifies a natural mean reversion level for the intermediate time frame. It has numerous applications in price prediction, position choice and strategy building. Traders, market timers and investors all benefit from 50-day EMA study, making it an indispensable ingredient in your technical market analysis.

Tip: For investors’ reference only, it does not constitute investment advice. Financial investment products have high risks and are not suitable for every investor. If necessary, please consult a professional consultant.