Trading Systems  |  SEP 2005

Shorting Moving Average Pullbacks by Steve Palmquist

Stocks & Commodities V. 23:9 (42-47): Shorting Moving Average Pullbacks by Steve Palmquist Do you have a trading system that works well during declining markets? You can add the moving average short system to your toolbox. A successful trader must have a variety of tools in his or her trading toolbox to match the various conditions he or she will encounter. The market has periods when it is trending up, trending down, and times when it is just basing. It is very difficult to find a system that works well in all three types of market conditions. A more fruitful approach is to use a different tool for each type of market. Using a system specifically designed for each type of market environment generally produces better results than trying to use one generic tool for all market conditions. A DECLINING MARKET The overall market direction is a powerful force that pushes most stocks in one direction. Just as it is difficult to swim against the tide, it is hard to make money in a declining market if your only tool was designed to find good long setups. When the market is declining, it is usually best to focus on shorts. One of the systems I use during market declines involves shorting pullbacks to a declining moving average. This technique is based on the observation that trends continue, and a pullback or retracement in the trend represents a low-risk (and well-defined) entry point.

by Steve Palmquist