Use of 200 day moving average as a 'mean aversion' trend reversal

The 200 day moving average (200dma) is the average price of the last 200 trading days. When used on major indexes rarely does the 200dma goes beyond 12 months without touching the current price again. In most cases, the 200dma touches the current price within 6 to 9 months or less. When it doesn't and goes beyond 9 months then there should be 'rubber band' effect where the 'reversion to the mean' back to the 200dma should occur within months.

The above chart is of the Gold and it last touched (or came very close to) its 200dma (the blue line) back in April 2009. As in the cases of the 2006 and 2008 highs, by around the 9th month since the 200dma was last touched, the prices peaked and fell back to touch the 200dma within the 12th month time frame. So in one of my trades, I am expecting current gold prices to fall about 10% which is close to where the rising 200dma is currently at.

Using this method on other major indexes we can see that the Nasdaq, SP500, and the Shanghai indexes are due to touch their 200dma either very soon or around summer time. What this means if one had been bullish on the stock markets then it's either time to do some selling and/or to hold back buying/adding until the 'mean aversion' has played itself out.

Note that the Nasdaq (late 1998 to early 2000) and Shanghai (2006 to 2008) indexes went way beyond 12 months in the charts above. No doubt these marked major bubbles.

Conversely, the 'mean aversion' of the 200dma can be used to anticipate important bottoms. Notice that the Nasdaq and SP500 (March 2009) and Shanghai (November 2008) bottomed and rallied back up to touched their 200dma again within the 12 month time frame.

This trading method using the 200dma can be used to help gauge whether a long momentum trend up or down is about to reverse or it will continue on.