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Obey Your Trendlines

|Includes: iShares Russell 2000 ETF (IWM)

Ok so the market tanked, snapped some trendlines, broke support, and became short term oversold.  So now what?  Well from times past I would say now is a good time to obey your trendlines.  With the recent selloff, most charts have now setup descending trendlines.  Trend lines at a 45 degree angle are my favorite for determining trend.  When price is above a rising 45 degree trendline - you stay long until it breaks.  What we have now are declining trendlines and what makes sense is to be in cash waiting for the right setups to go long, or short until proven otherwise.   Let's take a look at IWM as an example

Note the descending trendline with the green arrow pointing to it - it would be a good idea to obey that trendline.  As long as price stays below that line, the trend is down.  You can certainly make money on the bounces up to resistance, but just remember to get out if price is unable to close above the trendline.  Some of my worst trades in the past have come from buying stocks under a descending trendline, just because they were going up that day - only to hit resistance and plunge.

Disclosure: no positions