“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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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).

Zacks Investment Research