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CHART ANALYSIS


With IWM, Russell Selloff Looms Large

05/24/11 07:56:33 AM
by Donald W. Pendergast, Jr.

Is the mid-spring selloff finally here? One simple trading system may have the answer.

Security:   IWM
Position:   N/A

A few weeks ago, I wrote an article here in TCA about "The Cheapest Trading System In The World" (March 30, 2011), and, sure enough, the system has just given the green light on going short the Russell 2000 index as of the close on May 23, 2011. Given the tendency of the broad US markets to go into a seasonal slump during the mid-spring to mid-summer period, this new short signal takes on extra significance, particularly those with a built-in bearish bias. Figure 1 is a closer look.

FIGURE 1: IWM, DAILY. With April 2011's low finally taken out on a closing basis, will the Russell 2000 eventually retrace much of last year's rebound gains?
Graphic provided by: MetaStock.
Graphic provided by: MetaStock 11 CS Scientific expert advisor.
 
One of the nice things about trading a daily system is that the signals come at a much more leisurely pace than those typically spit out by a given daytrading system. Traders using the slower-paced system can simply check their system signals after the market close and then arrange to have their market-on-open orders (or limit or buy/sell-stop orders, as the case may be) placed into the exchanges at the next session's open. The system here tends to make 20 to 30 trades per year, maximum, limiting a trader's time commitment by a substantial amount, so it could be something for those who've been burned by high-frequency daytrading mishaps to consider.

The system does not appear to make as much money on the short side as on the long side of the ledger, but enterprising traders may still be able to figure out how to set appropriate profit targets that can enable a reasonable return on a higher percentage of their respective short setups in this system.

So are you ready to try this system out? If so, please read the March 30th article so you have a good understanding of the basic concepts and rules involved and then make sure you limit the risk to your account equity to less than 2% of its value (if not less), no matter how attractive this particular setup looks. As always in the world of trading, it's better to be safe than sorry.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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