CNBC Explains

CNBC Explains: The 200-day moving average

A trader works on the floor of the New York Stock Exchange.
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Recent sharp stock market moves have been blamed on the markets dropping below a closely watched technical indicator called the "200-day moving average."

The average—which market pros also call the "200 DMA"—looks beyond daily trading "noise" to the larger market trajectory and is considered a good measure of the trend for the trading year.

Exact calculation methods may differ, but in general the moving average is the average price of a security over a given period of time. For an index, the moving average is the average number of points for the defined time span.

Moving averages can also include time spans of 10 trading days or 100 trading days to show shorter or longer-term trends.

Breaking the moving average to the upside or the downside indicates a reversal in overall direction.

A chart that shows the S&P 500 breaking below the 200-day moving average on Oct. 13, 2014.