Strategy to trade Russell 2000 ETF

Russell 2000 ETF is one of the index funds I track for possible trading opportunities. The Russell small cap ETF tracks small cap companies which are mostly growth companies.

Most of the time I track the Russell small cap fund with stock market symbol IWM as my favorite choice. This exchange traded fund is issued by iShares fund provider. But there are also several leveraged funds tracking the Russell 2000 ETF index and also short exchange traded funds tracking this index.

Basic rules for Russell small cap ETF trading strategy

I use technical analysis a lot. There is one important tool in technical analysis which helps me clarify ideas for trading. It is relative strength analysis. I also use this type of stock chart analysis to understand situations with small cap ETFs.

The first question is if the current stock index chart situation is bullish, bearish or neutral. I compare the chart of IWM with the broad stock index chart of SPY (S&P 500 index exchange traded fund).

The situation is now neutral on these charts. Both index ETFs are near their 200-day moving average on strong horizontal support levels which can be seen on weekly charts. I would prefer to stay out and not trade the Russell 2000 ETF now.

I have noticed that the chart of small cap funds is now slightly stronger than SPY. You will notice that SPY is back on its 200-day moving average but the Rusell 2000 ETF is now close to its 50-day moving average and much higher above 200-day moving average than SPY.

My strategy would be that I would wait for IWM to move above the 50-day moving average and then go long with IWM . I would also consider using a leveraged fund like the Ultra Rusell 2000 ETF by Proshares.

Leveraged Short ETFs for small cap trading

I would not trade short ETFs for this small cap index and the situation is not so bearish yet. But if IWM will be ready to break under the 77 – 77.50 support level then I would prefer to short sell, as this fund will definitely be in bearish down-trend.

A leveraged Ultra Short fund like Ultra Rusell 2000 ETF with symbol TWM or only Short Rusell 2000 ETF with symbol RWM could be a good choice to participate in such a trend. And I noticed that there is also 3x leveraged Ultra Short Rusell 2000 Fund with symbol SRTY. To enter such a bearish trade we have to be long in these Ultra Short exchange traded fund shares.

I would like to note that these leveraged and short ETF shares often have some carrying costs and they are not good for long term holding. They are better for swing trades and position trades for days or weeks.