So what exactly is moving average? It is a technical terminology that is derived majorly from price and volume factor, as it is the main indicator that reflects the likely pattern. Mathematically, it is the average of a particular parameter in 'n' days. And so, a 200 DMA is the average price of a stock or index in the last 200 trading days.
The moving average measure is supposed to smoothen out changes in stock price on a daily basis and helps determine trend in the market.
"Moving" term is used as the stock price changes on a daily basis and 200 DMA factors in the closing price of the past 200 days. And daily moving average of 200 or DMA 200 is considered apt for indicating a long term trend. Moving averages for a shorter term of 20 and 50 days is also computed.
In stock market parlance, a short time of 10-15 days indicates short or fast DMA while a long span of 50-200 days covers long or slow DMA.
Significance of DMA
DMA determined for a period together studied with the price line determine direction of stock or index price.
Helps in the determination of short-term trend with respect to price movement which applies for only a shorter term of 3-6 months.
Not determines the fundamentals of a company.
DMA statistics can be used by long-term investors for deciding entry time in a particular stock.