"The 200 day moving average may be the granddaddy of moving averages. Simply put, a financial instrument that is trading above it is healthy; below it, anemic. The 200 day moving average measures the sentiment of the market on a longer term basis. This is where major players like pension plans and hedge funds need to look in order to move a large amount of stocks. I display it on all my workspaces proudly, formatted in emerald green and real thick so I can't help but notice."MA 200 lags. This indicator does not predict the direction of the price, but rather the current situation. Coupled with other leading indicators, you analysis could be more complete. Therefore, when you hear "the trend is your friend," technically put it really means that the price over the last 200 days is indicating an upward trend, therefore look for buy opportunities; versus the price is below the last 200 days, therefore look for sell opportunities.
So, in nutshell, what are the uses of MA 200 then?
In my trading analysis, the indicator basically give a good picture on the following.
#1. TREND - check if the price is well below, above or touching the MA? This will show you generally what is the trend of the price movement. This comes useful if you want to find out the performance of the stock in terms of growth.
#2. SLOPE - ask yourself if the slope in steep enough (being up or downtrend), or is it just a neutral slope. Generally, as a trend-following trader, the steep slope is a good chance of continuous up-trending.
#3. CROSSOVER - this is in relation to other short-term MAs I am using. If the price and other short term is well above the MA 200, it is a good chance that the stock is still up-trending. However, if the short term MA (or even the price) starts to crossover MA 200, the trend could change.
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