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Trader Q&A: What are Indicators for Buying and Selling?

Schwab’s Trading Services team covers how to use market movement as an indicator for buying and selling.

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[Lou] Our next one, Adrian from Texas: "What are some major market indicators for buying and selling?"

[Randy] That's a very broad question so I think we've all got three different answers probably on that one, right? The simplest one is the market's going up; that means people are buying.

[Lou] So an easy way to do it might be to look at a 50-day moving average crossing over at 200-day moving average. A lot of people might make a rule, and they say if the 50 is below the 200-day simple moving average do not buy stocks to trade, that intermediate to longer-term trend is going down, not up. You want to buy stocks when that 50-day simple moving average is above the 200-day simple moving average. That will give you the green light. Still do the research, but at least that's part of your plan on yes or no.

[Christophe] I think one thing to include in that is that the longer, the more tenure that a moving average has, so 200 versus 100 versus 50, really the more authority it possesses, the more authoritative the move will be where it actually breaks that specific moving average. So it's something to keep in mind.

[Randy] The important thing to note on those crossovers—and I do think there's some value there is that they're not going to catch the top of the bottom; there's no way. They can't because of how they work; they're lagging indicators. So when you do have those crossovers you're already in a down market and when you have it to cross over to the upside you're already in an up market so—but that's okay because as you said, Lou, you don't have to catch the entire trend. You're not going to buy at the bottom and sell at the top. If you can buy after the bottom is reached, which is what happens when you get that crossover, or after the top is already happened you can still catch the bulk of the trend and still be okay and still make money.


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