So it depends on your timeframe. If you are a position trader I would take a look at the 50-day moving average. Everybody looks at the 50 day moving average. All right? You have to look at what other people are looking at to the extent that any technical analysis is self-fulfilling. That's a good one to look at if you're in intermediate term moving, intermediate term trader. If institutions have a position in a stock and it retreats they will consider adding to that around the 50 day moving average. Sometimes it’s a little bit above. It's a little bit below. But it gives you a general guideline. I would say though that you've got to put that moving average on a chart and see if the stock respects it. Not all stocks do. If it doesn't don't use it. All right. But if it does it gives you some guidance.
If you are a shorter-term trader then those swing traders I talked about, the ones who like to hold for a couple weeks or so, they tend to look at the 20- or 21-day moving average. There's 20 or 21 trading days in a month. The shorter-term swing traders tend to look at the ten day moving average. That's two trading weeks. Another rule of thumb you can sort of use is if I like to hold a stock x amount of time maybe I'll look at a moving average somewhere between two and three times my estimated holding period.
Lou Mercer: I like that. All right. Crossovers, should they pay attention to that? Should they put one moving average on, two moving averages on, three moving averages on? I heard some people might put three different moving averages on a chart to help them scaling into a position. How might someone go about doing that?
Lee Bohl: Yeah. This is a good question. I was at an event for Schwab in Denver in June and this client came up to me afterwards and he goes "Well, I use moving averages and crosses to get into positions but what I find is, ok, a cross is the moving average I'm interested in and then a lot of times it just turns right back and I get whipsawed." And he said and I like to use a couple moving averages. So what I said to him is, well, why don't you do this. He liked to use three moving averages so I said, all right. Obviously the shortest moving average, that's the one with the fewest days in it is most sensitive to price.
If the stock starts trading above that you put on a little position. You're getting a little bit bullish in the shorter term. If it crosses the next one add more. Now if it backs off you don't have your full position on, right, you don't lose too much. If it crosses the third one in your time frame then you add more. Now you've got the most money working at the when the trend is probably switching in three different timeframes. So that's kind of what I do, scale in and scale out if you're using moving average crosses or price crossing and moving average. You do get whipsawed a little bit less.
Lou Mercer: Yeah. We can't say it enough. There's no Holy Grail to investing but have an idea, have a plan, stick to it that's what it's all about. Steve from New York, a lot of people look at different moving average periods. Do you have a recommendation on which one to watch? I'm sorry. I think that's the one we just had. Please continue to send your questions. We're here live in Times Square in New York. You're watching Schwab live. You can find us at schwab.com/live. You can also find us on Twitter. Ask a question using a hashtag or the @schwab4traders. Follow us and ask it there.