Nick Goold
How to Trade with the 200-Day Moving Average in Forex
The 200-day moving average (200 DMA) is one of the most widely followed indicators in technical analysis. It calculates the average closing price over the last 200 trading days and plots it as a line on the chart. For forex traders, the 200-day moving average helps identify the long-term market trend and is considered the longest moving average used in trading strategies.
While the 200 DMA is most commonly applied on the daily chart, traders also adapt it to other timeframes — for example, a 200-bar moving average on the hourly or 5-minute chart — to suit their trading style.
Why the 200-Day Moving Average Matters
The 200 DMA is important not only because it reflects the long-term trend, but also because of its psychological impact. Technical analysis often works because traders collectively believe in it, creating self-fulfilling patterns. If many traders expect prices to rise above the 200-day moving average, buying pressure increases — and this very belief pushes the market higher.
Because the 200 DMA is frequently written about in trading books, blogs, and analysis reports, most traders and investors are aware of it, making it one of the most powerful tools for understanding market direction.
Popular 200-Day Moving Average Strategies
1. Moving Average Break Buy
When the price closes above a downward-sloping 200 DMA, it can signal the start of a new uptrend. This strategy works best when confirmed by strong volume and improving momentum.
2. Moving Average Touch Buy
In an established uptrend, when prices pull back to touch the rising 200-day moving average, it often creates a buying opportunity. The steeper the uptrend, the more reliable this strategy can become, as the moving average acts like dynamic support.
3. Second Cross Buy
This continuation pattern occurs when prices dip below the upward-sloping 200 DMA but later recover and close back above it. Traders who sold on the break may be forced to buy back, adding fuel to the rally alongside new trend-followers entering long positions.
4. Moving Average Gap Buy
If prices fall significantly below the 200-day moving average, the market may become oversold. Many traders use this as a contrarian reversal opportunity, expecting prices to return toward the moving average. The required gap depends on market volatility, so backtesting is essential.
Using the 200-Day Moving Average as Support and Resistance
The 200 DMA is not just a trend indicator — it also acts as dynamic support and resistance. For example, in a long-term downtrend, the 200-day moving average can serve as a take-profit target for long positions. In an uptrend, traders often place stop losses just below the 200 DMA to protect their trades.
Short-Term Trading with the 200-Day Moving Average
Day traders and swing traders can increase profitability by aligning with the longer-term trend. When prices are above the 200-day moving average, short-term traders generally look for buying opportunities using shorter moving averages (such as the 10-day or 20-day). Conversely, when prices are below the 200 DMA, they focus on short setups.
Combining Moving Averages
Many traders combine the 200-day moving average with a shorter one, such as the 50-day moving average. The classic Golden Cross occurs when the 50-day moving average rises above the 200 DMA, generating a buy signal. The opposite, called the Death Cross, signals bearish momentum. The advantage of using two moving averages is that it often provides earlier entry points compared to waiting for price to break the 200 DMA itself.
Risk Management with the 200-Day Moving Average
Since the 200 DMA is a long-term strategy tool, profits on winning trades can be two or three times larger than losses. A common rule is to hold long positions above the 200-day moving average until prices close back below it. However, this method can sometimes lock in smaller gains or allow losses to grow.
To improve results, traders often combine the 200 DMA with traditional support and resistance analysis. For example, placing stops below nearby daily support or taking profits at resistance can increase the effectiveness of the strategy.
Mental Control and Patience
Trading with the 200-day moving average requires patience and confidence. Because it is a long-term tool, traders must resist the temptation to react to short-term fluctuations. Those who focus too much on intraday moves often abandon the strategy prematurely, while successful traders stick to the plan and allow long-term trends to play out.
