1-200 Moving Average System

1-200 Moving Average System is a trend-following trading strategy that uses the relationship between the 1-day and 200-day moving averages to generate buy and sell signals. This system is widely used in technical analysis to capture long-term trends and avoid false signals.

1 Concept

The strategy relies on:

• 1-day moving average (1MA) – Represents the most recent closing price.
• 200-day moving average (200MA) – Represents the long-term trend.

Traders use this system to identify bullish and bearish market conditions based on the position of the 1-day moving average relative to the 200-day moving average.

2 Trading Rules

1. Buy Signal – When the price (1MA) crosses above the 200MA, indicating an uptrend (Golden Cross).
2. Sell Signal – When the price (1MA) crosses below the 200MA, indicating a downtrend (Death Cross).

3 Example

A simple implementation of the 1-200 moving average system in Python:

import pandas as pd
import matplotlib.pyplot as plt

# Load historical stock data
df = pd.read_csv("stock_prices.csv")

# Compute moving averages
df["1MA"] = df["Close"]
df["200MA"] = df["Close"].rolling(window=200).mean()

# Generate buy and sell signals
df["Signal"] = (df["1MA"] > df["200MA"]).astype(int)

# Plot the data
plt.plot(df["Close"], label="Stock Price")
plt.plot(df["200MA"], label="200-Day Moving Average", linestyle="dashed")
plt.legend()
plt.show()

4 Advantages

• Simple to Implement
  • Easy to calculate and interpret.
• Effective for Trend Following
  • Helps capture long-term trends.
• Reduces Market Noise
  • Filters out short-term fluctuations.

5 Limitations

• Lagging Indicator
  • Signals appear after trends have started.
• Whipsaw Risk
  • Frequent false signals in sideways markets.
• Not Suitable for Short-Term Trading
  • Designed for long-term trend identification.

6 Applications

• Stock Trading**Commonly used in equity markets.
• Forex Trading
  • Helps traders identify major currency trends.
• Cryptocurrency
  • Used to navigate volatile crypto markets.

7 See Also

• Moving Average
• Golden Cross
• Death Cross
• Trend Following Strategy
• Technical Analysis