Name, Sometimes Called:
SMA(50/200)(price)
Golden Cross
Brief Description:
A positive
development occurs when the 50-day simple moving average (SMA)
of an issue's
closing price crosses over the 200-day SMA of the issue’s
closing price.
This is written as
SMA(50)(price) x+ SMA(200)(price)
This indicator is no longer positive when the 50-day SMA crosses
under the 200-day SMA.
SMA(50)(price) x- SMA(200)(price)
Definitions, Formulas:
To calculate the simple moving averages (SMA)
we use two periods: 50 trading days and 200 trading days.
For this technical analysis indicator (TAI)
we have:
SMA(50)(price)k = 
SMA(200)(price)k = 
where
k = the position of day k in the period
 =
the closing price on day i
A positive development for this indicator occurs when SMA(50)(price)
x+ SMA(200)(price)
This indicator is no longer positive when SMA(50)(price) x- SMA(200)(price)
Positive Development Calculation:
A new positive development (NPD)
occurs for this technical
analysis indicator (TAI) when SMA(50)(price) x+ SMA(200)(price).
This TAI
is no longer positive when SMA(50)(price) x- SMA(200)(price)
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
Simple Moving Averages (SMA) are considered to be among
the simplest, oldest, and most widely used of statistical stock
price analysis methods. As one example, the 200-day SMA has been
used for decades. Averages smooth data and make it easier to spot
trends. A moving average requires data from previous trading periods,
so it lags the price and is one of a class of lagging
indicators. Lagging indicators tell you what prices are doing now,
or in the recent past, so they are useful when stocks are trending.
The word “simple” is used to indicate that each day’s
price is given equal weight. Not every moving average weights each
day’s price equally. For other types of moving averages, see
moving averages for a list and explanations.
This chart shows the SMA(50/200)(price) indicator
for Panera Bread, June 2004 to September 2005. Notice that SMA(1/200)(price)
would have indicated several purchase-sale points during the same
period. The exit point of about 51 was more than 20% below the 66
high indicating that a better exit point
might be desirable.
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