Financial Market Timing: Spx
Typical investors lose money trading. Here is a partial list of the issues they have and how to resolve them.
1) They cannot take profits.
2) They cannot take losses.
3) They wait too long to make sure that the trend is valid, only to get in just in time for a fallback.
4) They lose two times in a row, and don't take the next trade - consequently, they pass up the big move.
5) They trade stocks and don't take into account factors that can influence the stock's price.
6) They trust that "buy and hold" works.
7) They go long a bear market.
8) They go short a an up market.
9) They invest too much of their capital in a single stock or trade.
10) Investors, generally, are much too influenced by emotion.
This article gives you a financial market timing plan for the S&P 500. The S&P 500 represents 500 stocks, as you probably appreciate. Since the S&P 500 is an index and isn't traded, you will need to trade the ETF called SPX. The SPX which is a proxy for the S&P 500 moves smoothly, and normally unexcitedly. Unless you are very accurate with your trade entries and exits, you doubtless won't make much money trading SPX in the short or intermediate term. You need a set of tools, or at least a number of principles. Continue reading, and you will have these principles.
Because the SPX represents 500 stocks, you won't see the outrageous moves you might expect if you own an individual stock. If you have traded stocks, you know that they can be volatile. If the CEO gets hauled away in handcuffs, if the company under-performs, or their drug doesn't get approved, expect great movements in that stock price If you own an individual stock through its earnings announcement, you very likely will be surprised by the extent and violence of the move - frequently against you, it seems.. You won't have to worry about earnings announcements, if you trade SPX. There are so many stocks represented by the SPX, the earnings announcements factors are reduced or dissipated.
Tools to use to trade SPX:
Leveraged ETFs
Many traders don't think you can make money trading SPX in the short term or intermediate term. You must have a long-term horizon, or use leverage. Leverage can be provided by trading options on SPX, or, a much easier procedure is to trade leveraged ETFs like SSO and SDS.
SSO is the 2X bullish leveraged ETF and SDS is the 2X bearish ETF. With a leveraged ETF like SSO, a 5% move in SPX gives you about a 10% move in SSO. You can trade the bearish ETF, SDS, if you want to gain from a sinking market - even in your IRA account.
Money management
You will need to employ money management if you want to gain from trading SPX. In fact, you will need money management if you want to trade any stock, option or ETF. Here is a tested, simple money management secret that works exceedingly well. It is based on the movement of SPX.
The money management or if you prefer, risk management game plan, is relatively simple: When SPX has moved in your direction by 5%, you sell 25% of the shares you hold. If you get another 5% move in your direction, sell one-half your remaining shares. Sometimes SPX will move 15%, in your direction. This is rare, but it has been happening. This has been happening more frequently since the Federal Reserve has been using quantitative easing, QE1 and QE2. Many experts believe quantitative easing has accounted for the current, persistent rise in the stock market.
You must resist your greed! If you don't take profits when they appear, they will very likely disappear from you. If you have been trading for a while, I am sure you will agree with me that It is hard to take profits - we are all so greedy. I would guess that you have lost profits on a good trade that unexpectedly turned around on you.
Use a Market timer
How do you know what the market is going to do? A market timing service is your best tool. Humans are especially poor at estimating which way the stock market is likely to move. Even people experienced traders, find that following a market timer procedure makes a big difference in the results.
Leap of faith
Using any market timing service is confounding. People can look at the actual performance results of a timer and still think that they can do a better job. If you have trouble following a market timing service, then make your trades smaller. Ultimately, you will gain the fearlessness you need to trade larger amounts of your capital. By the way, I have met very few people who can persistently out-perform a good market timing service. Traders are much too emotional.
To summarize:
Don't trade individual stocks. Trade a leveraged ETF representing a broad-based index, to bring about diversification. Use a money management game plan. Subscribe to a market timer service. Get control of your emotions so that you can follow the timer. Employing these tips will improve in your success at trading.
1) They cannot take profits.
2) They cannot take losses.
3) They wait too long to make sure that the trend is valid, only to get in just in time for a fallback.
4) They lose two times in a row, and don't take the next trade - consequently, they pass up the big move.
5) They trade stocks and don't take into account factors that can influence the stock's price.
6) They trust that "buy and hold" works.
7) They go long a bear market.
8) They go short a an up market.
9) They invest too much of their capital in a single stock or trade.
10) Investors, generally, are much too influenced by emotion.
This article gives you a financial market timing plan for the S&P 500. The S&P 500 represents 500 stocks, as you probably appreciate. Since the S&P 500 is an index and isn't traded, you will need to trade the ETF called SPX. The SPX which is a proxy for the S&P 500 moves smoothly, and normally unexcitedly. Unless you are very accurate with your trade entries and exits, you doubtless won't make much money trading SPX in the short or intermediate term. You need a set of tools, or at least a number of principles. Continue reading, and you will have these principles.
Because the SPX represents 500 stocks, you won't see the outrageous moves you might expect if you own an individual stock. If you have traded stocks, you know that they can be volatile. If the CEO gets hauled away in handcuffs, if the company under-performs, or their drug doesn't get approved, expect great movements in that stock price If you own an individual stock through its earnings announcement, you very likely will be surprised by the extent and violence of the move - frequently against you, it seems.. You won't have to worry about earnings announcements, if you trade SPX. There are so many stocks represented by the SPX, the earnings announcements factors are reduced or dissipated.
Tools to use to trade SPX:
Leveraged ETFs
Many traders don't think you can make money trading SPX in the short term or intermediate term. You must have a long-term horizon, or use leverage. Leverage can be provided by trading options on SPX, or, a much easier procedure is to trade leveraged ETFs like SSO and SDS.
SSO is the 2X bullish leveraged ETF and SDS is the 2X bearish ETF. With a leveraged ETF like SSO, a 5% move in SPX gives you about a 10% move in SSO. You can trade the bearish ETF, SDS, if you want to gain from a sinking market - even in your IRA account.
Money management
You will need to employ money management if you want to gain from trading SPX. In fact, you will need money management if you want to trade any stock, option or ETF. Here is a tested, simple money management secret that works exceedingly well. It is based on the movement of SPX.
The money management or if you prefer, risk management game plan, is relatively simple: When SPX has moved in your direction by 5%, you sell 25% of the shares you hold. If you get another 5% move in your direction, sell one-half your remaining shares. Sometimes SPX will move 15%, in your direction. This is rare, but it has been happening. This has been happening more frequently since the Federal Reserve has been using quantitative easing, QE1 and QE2. Many experts believe quantitative easing has accounted for the current, persistent rise in the stock market.
You must resist your greed! If you don't take profits when they appear, they will very likely disappear from you. If you have been trading for a while, I am sure you will agree with me that It is hard to take profits - we are all so greedy. I would guess that you have lost profits on a good trade that unexpectedly turned around on you.
Use a Market timer
How do you know what the market is going to do? A market timing service is your best tool. Humans are especially poor at estimating which way the stock market is likely to move. Even people experienced traders, find that following a market timer procedure makes a big difference in the results.
Leap of faith
Using any market timing service is confounding. People can look at the actual performance results of a timer and still think that they can do a better job. If you have trouble following a market timing service, then make your trades smaller. Ultimately, you will gain the fearlessness you need to trade larger amounts of your capital. By the way, I have met very few people who can persistently out-perform a good market timing service. Traders are much too emotional.
To summarize:
Don't trade individual stocks. Trade a leveraged ETF representing a broad-based index, to bring about diversification. Use a money management game plan. Subscribe to a market timer service. Get control of your emotions so that you can follow the timer. Employing these tips will improve in your success at trading.
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