How to Trade the Russell 2000

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How to Trade the Russell 2000

By www.ProfitableTradingTips.com

A popular and profitable means of trading stocks is trading the Russell 2000. How to trade the Russell 2000 most effectively is through a combination of fundamental analysis of the general economy and technical analysis of the price patterns of the Russell 2000 itself. How to trade the Russell 2000 is to trade shares of a fund that tracks the Russell 2000. A feature unique to indexes such as the Russell 2000 is that they rebalance yearly. How to trade the Russell 2000 at that time is to use the index as a guide and trade stocks that are being added to or taken from the Russell 2000. Their prices will tend to go up if their percent of the index goes up and down if their percent of the index goes down. The Russell 2000 is an index of small and mid cap stocks. These are the lowest 2000 capitalization stocks in the Russell 3000 index. The larger Russell 3000 index includes nearly all US stocks at 98 percent of total market capitalization. Although the Russell 2000 index has two thirds of the stocks of the Russell 3000 and roughly two thirds of all US stocks it only amounts to ten percent of the capitalization of the larger index. Stocks in the Russell 2000 are those with capitalization of no more than about $1.6 Billion. How to trade the Russell 2000 is to pay attention to the factors that affect small and mid cap stocks.

How to become a successful day trader of the Russell 2000 is to find funds that track the Russell 2000 such as iShares, ProShares, Direxionshares, and RydexShares. There are also funds that only deal in futures of stocks that track the Russell 2000. Although these funds can provide the trader with a great deal of leverage and the potential for expanded profits, how to trade the Russell 2000 should start with basics. The Russell 2000 is comprised of small and mid cap stocks. In general, the smaller the stock, the greater the potential is for growth and the greater the potential is for failure. Successful small and mid cap stocks in the Russell 2000 will tend to provide a greater return on investment than well established large cap stocks. The effect of an occasional failed company on the Russell 2000 is typically overshadowed by the overall success of the larger part of the index.

Trading the small and mid cap funds that track the Russell 2000 is not trading penny stocks. The stocks in the fund are all traded on the NASDAQ and NYSE. They all have a substantial amount of information available to the trader who wants to do individual fundamental analysis on the members of the Russell 2000. Certainly keeping an eye on the economy and economic reports will help the trader keep ahead of the market. However, it is through the use of technical analysis that traders typically profit from trading the Russell 2000. Traders make money scalping profits as the Russell 2000 makes it moves. They trade momentum occasioned by economic news and exit when technical signals indicate a reversal. As mentioned at the start there is a lot of trading related to the rebalancing of the Russell 2000 once a year. Those attuned to who is going in and out of the index can make major profits if well prepared.

For more insights and useful information about trading stocks, options, futures or Forex, visit www.ProfitableTradingTips.com.

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