Trading Linear Regression Channel Breakdowns

The chart above shows a LRC pattern from the Russell Emini (ER2) 610 tick chart. On Jan. 16, 2007, ER2 sold off during the morning trade and closed near 798. At lunch hour, ER2 formed a LRC from 798 to 801 as prices tried to recover and traded higher. Around 12 pm, ER2 continued its prior down trend and closed below the LRC.

1. Enter a "short" trade below the low of the breakdown bar at 798.5.

2. Place a "stop" order to protect the short at 801.2.

3. The previous range prior to the LRC formation is set as the target range. The prior range is from 805 to 798. Subtract this range from level C at 801. The target is set at 794.

Trading LRC

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