When the S&P 500 is above its 200-day moving average, median gains have tended to return 2.77% with a 70.10%-win rate over the following trading quarter on a sample size of 12,814 since 1950. Now that we have explored the concept of trend, another question needs to be answered: how do we stay on the right side of the trend? The simplest answer is often to use the 200-day moving average as a filter we are in when the market price is above the average, and we are out when the market price is below the average.įor a simple illustration, let’s review the historical behavior of the S&P 500 when these conditions are present. However, we note that this post is timely given the current proximity of the index to its 200-day moving average currently. The purpose of this blog is to provide insight into the 200-day moving average primarily as a risk management tool and explore the historical context of the behavior of the S&P 500 when it closes both above and below its own 200-day moving average. Some will posit that this indicator is an outdated relic of the past, harking from the days when charts were drawn by hand and numbers rounded to provide quicker calculation, while others elevate the indicator in isolation as the holy grail of all trading systems. Its uses are limited by the skill and experience of its user rather than its own merit. However, it’s just a tool like anything else at the end of the day. Roughly equivalent to ten months of trading, this measure of long-term trend has found uses in everything from trading to risk management. The 200-day moving average is arguably the most widely cited Technical Analysis indicator among financial media journalists, investment analysts, and portfolio managers alike.