Traders employ the 100-day moving average (100 DMA) to identify price trends. Let's study it in detail -
The 100 DMA calculates the average price of a security over the last hundred trading sessions. This value is then plotted on a chart to draw a trend line to determine the direction of the stock's price over the medium term.
To calculate the 100-Day Moving Average,
This simple calculation identifies support and resistance levels and assesses the health of a stock's price movement.
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The 100 DMA filters out daily price noise, allowing you to identify the general direction in which a stock's prices are headed. Therefore, it acts as a realistic assessment of price movements when making trading strategies.
The 100 DMA gives traders a complete picture of the stock's performance over the medium term, which is approximately 20 weeks. A sharp upward trend line indicates bullish market sentiment, while a downward trend line suggests bearish sentiment.
Traders use the 100 DMA to examine market sentiment. Prices trading above the moving average signal a bullish market, and vice versa.
When the price is above the 100 DMA, it signifies an uptrend and promotes buying opportunities. Conversely, when the price retraces toward the moving average or other support levels, look for bullish entry triggers to enter long positions.
Investors use the 100 DMA as support and resistance levels. Setting limit orders to buy when prices breach the support level on the moving average and setting sell-limit orders when prices approach the resistance level.
While the 100-Day Moving Average is a key indicator for analyzing price trends and market sentiment, avoid relying solely on it for trading decisions. Also, combine it with other indicators, including the 50-day and 200-day SMAs, for a more comprehensive analysis.
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