“My Metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.” ~ Paul Tudor Jones
The Power of the 200-day Moving Average
Over my more than two decades of investing experience, I have learned the significance of simplicity. Because we live in an era of smart phones, up-to-the-second news headlines, and commission-free trading through stock brokers like Robinhood (HOOD), it can be easy for investors to fall into the trap of over-trading or getting caught up in the overwhelming noise. One-way investors can combat these common pitfalls is to block out the noise, and listen to the charts. The 200-day moving average is one of the most powerful ways to achieve better returns because it allows investors to identify the prevailing long-term trend, find high-probability buy areas, and most importantly, manage risk.
Though the 200-day moving average provides nothing more than a way for investors to identify trends, it’s power should never be underestimated. In January 2022, the Nasdaq 100 Index ETF (QQQ) broke below the 200-day moving average and would trend below it for a year as the index got hammered. By early 2023, the bear market had ended and QQQ regained its 200-day moving average. Since then, the price has trended above the 200-day moving average and the index has nearly doubled.
Image Source: TradingView
The beauty of the 200-day moving average is that it allows investors to buy the dip against a level. If proven correct, these investors take advantage of the next uptrend. If proven incorrect, they can keep their losses contained as price slashes through the long-term moving average.
Below are three quality stocks to buy off the rising 200-day moving average:
1. On Holding (ONON)
Zacks Rank #2 (Buy) stock On Holding is an emerging leader in the running shoe category. The company has delivered consistent double-digit revenue growth due to its premium brand image within the running community, direct-to-consumer growth (leads to higher profit margins), and global expansion. Last quarter, ONON beat Zacks Consensus Estimates by a juicy 90%.
Image Source: Zacks Investment Research
2. Amazon (AMZN)
Amazon has long been dominant in the US e-commerce market and will continue to be as the company’s logistics network is unmatched. Meanwhile, AMZN’s business stretches far beyond e-commerce. Amazon is the undisputed cloud leader with its AWS service and its expending further into content and generative AI.
Image Source: TradingView
3. MicroStrategy (MSTR)
MSTR is the first public company to add Bitcoin to its balance sheet. Investors can think of the stock as a leveraged Bitcoin proxy. Though the stock is volatile, its performance is undeniable – especially when buying off the 200-day moving average. In October 2023, MSTR tagged the 200-day moving average ~$30 and would soar to $200 by March 2024. In August 2024, MSTR tagged the 200-day MA again, and by November the stock rocketed to more than $500!
Image Source: TradingView
With plans for a US Bitcoin Strategic Reserve likely to be unveiled later this week, MSTR has no shortage of bullish catalysts.
Bottom Line
The 200-day moving average is a handy tool that investors should use to navigate market volatility and manage risk. By focusing on this long-term trend indicator, investors can identify potential buy opportunities during market dips.
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See This Stock Now for Free >>Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
MicroStrategy Incorporated (MSTR) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
On Holding AG (ONON) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
