The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
A technical analysis indicator is used to determine the trend of a market, the strength of the market and the direction of the market. A technical analysis indicator may be specific or non-specific. Some technical analysis indicators can be quantified in the form of an equation or algorithm. Others show up as patterns (e.g. head and shoulders, trendlines, support and resistance).
Russell 2000 Index Technical Analysis Rules
A trading system is created by generating signals, setting up a decision making procedure, and incorporating risk management into the system. A trading system is supposed to be objective and mechanical. The analyst combines a set of objective trading rules (usually in a formula(s) or algorithm(s)).
As a general rule, good technical analysis indicators are the building blocks of good trading systems. However, as previously mentioned, even good technical analysis indicators can lose their validity when combined in a trading system. Therefore, it is important to not only back-test your system but to also forward-test your system in real time.
On the Chart below you may see an example of a simple trading system based on the money flow analysis via SBV Flow technical indicator. As you may see from the chart, a buy signals is generated when SBV Flow crosses over zero center line and a sell signal is generated when SBV Flow crosses below zero center line. Again, this is the simplest possible system with one rule to buy and one rule to sell. I reality a trading system is more complex and usually includes stop loss strategy, money allocation strategy and etc.
Market Timing, Trading Systems & Technical Analysis Systems for the Russell 2000 Index
Chart #1: Example of the simple Russell 2000 index trading system based on the SBV Flow indicator: