Battle Plan Trade of the Week: Swing Trading the SPY, IWM and EWG
There is a debate among traders about how to best approach edges.
One school of thought suggests that traders should be wary about increasing their position size, increasing their potential risk and reward, when edges are believed to have increased in their favor. Here, the thinking is that often when a trader believes that the edges are lined up on their side, what is really at work is bad psychology – or even greed – and that traders should resist this temptation and keep their trading sizes relatively consistent.
Another school of thought takes the opposite view. This approach suggests that because the majority of a traders biggest gains will come from relatively few trades, traders owe it to themselves and their trading methodology to, essentially, bet biggest when the edges are largest.
Whichever school of thought you belong to, the abundance of trading signals, short signals to be specific, that we received during the five-day advance in the S&P 500 and Dow industrials was enough to tempt even the most modest trader to consider putting a few extra chips on the table.
We were able to point traders to a number of short opportunities in exchange-traded funds late last week, ETF trading being increasingly one of the best ways for traders to take advantage of downturns in the market. These ETFs included funds as diverse the iShares Russell 2000 ETF
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IWM |
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PowerRating) and the iShares Germany Index ETF
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EWG |
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PowerRating). But the trade in the SPDRS S&P 500 ETF
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SPY |
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PowerRating) was in many ways the most rewarding.
This is because it was in the SPY that we had the maximum amount of edges on our side. Not only did we get a large number of sell signals in the SPY late last week based on our market timing indicators, but also our bread and butter analysis of an overbought SPY with a low Short Term PowerRating and an extremely high 2-period RSI helped encourage us to more aggressive than usual in trading this ETF.
Given Monday’s sell-off, it is probably little surprise that our short positions taken late last week became very profitable early this week. BattlePlan traders were able to lock in profits in four out of the five recommended short ETF trades, with the fifth trade still profitable as of this writing.
If your trading has gotten tougher over the past weeks and months, then consider a free trial to our TradingMarkets Battle Plan for Stocks. Every day we’ll provide you with incisive, before-the-bell commentary and analysis on the day’s markets to help put your trading in context. We’ll give you suggested entries and exits for trade opportunities that may be only hours away. And we’ll give you what many other people can’t: model-driven percentages so that you know the historical win rate going back to 1995 for every single trade idea – long and short.
Give the TradingMarkets Battle Plan a read before the next market open. Click here to start your subscription or call us today at 888-484-8220. Come see what the TradingMarkets approach to trading can do for you.
David Penn is Editor in Chief at TradingMarkets.com.