USA 500, also referred to as the S&P 500 or just S&P, is a market capitalization-weighted index that is used to track the stock price performance of the leading 500 companies in the US. Some of the companies on the index include Google, Facebook, Amazon, JPMorgan, and Microsoft. Therefore, it is considered an overall indicator of the level of strength of the US economy.
At the beginning of 2020, the market capitalization of S&P 500 was estimated to be $24.4 trillion. The composition of the index implies that it reflects about 80% of the US stock market. It is also considered a good option for both short-term and long-term stock trading.
Here is a comprehensive guide, with pro tips and strategies, to help you trade USA500 successfully.
Benefits of Trading USA 500
Before we can look at some of the strategies for trading USA 500 stocks, you might be wondering, “Why S&P and not the other stocks?” Here are some of the main benefits to anticipate when trading USA 500:
- The technical chart patterns make it possible to identify entry and exit signals.
- Tight spreads offer inexpensive cost of entering and exiting a trade.
- USA 500 stocks are comprehensively covered by analysts who do both technical and fundamental analysis.
- Flexible because it allows you to trade five days of every week.
Strategies for Trading USA 500
Now that you know the main benefits of trading USA500 stocks, we will now turn to the common strategies that you can use:
Position Trading
This is one of the popular strategies, which involves holding a position of your selected stock for a long period, perhaps several months or even years. Position traders are not interested in short term price changes but focus on the long term trends. Simply put, this strategy closely resembles investing in properties where people buy and hold their investments over a long period.
Because of the long trading time-frame, the potential for success is higher compared to short-term trading strategies. Also, the strategy requires less maintenance of the positions because you capitalize on the more substantial trends, reducing the noise of the market. See the demonstration below:
When using position trading, there are a number of styles that you can use, and we are going to look at some of them. Notably, most position traders tend to use fundamental and technical analysis to identify the prevailing trends in the market.
- 50-Day Moving Average Trading
This is one of the common indicators among position traders, and the main reason for this is that 50 is a factor of 200 and 100, which are corresponding moving averages for long term trends. This implies that when the 50-day MA intersects with the 100 and 200 MA indicators, it could be a sign of a new trend.
- Support and Resistance Trading
Support and resistance are used as signals to indicate where the price of an asset is headed, meaning that traders can establish when to open or close positions. A support level is the price that a selected SP500 stock, historically, does not go below. Note that you can have short-term and historical/ long-term levels that hold for years.
Conversely, the resistance level is the price of a selected stock where it tends not to break. Position traders use long-term resistance to identify points at which a reversing trend is likely to start.
To use support and resistance trading, it is paramount to analyze USA 500 live charts carefully. Particularly, you should consider three things; the historical price, previous support and resistance levels, and technical indicators like Fibonacci retracement.
Scalping
Scalping is a trading strategy where people specialize in profiting from small price changes. The strategy requires the trader to have a clear exit strategy because one large loss can easily wipe up many small gains. Here is a demonstration of how you can use scalping to trade USA500 stocks.
- Select the preferred SP 500 stock.
- Identify the preferred time-frame.
- Wait for the price to reach an interesting level, such as resistance, support, or pivot, among others.
- Open a position and focus on gaining some points as the price rises or falls further.
- Close the position in profit or loss quickly.
When using scalping to trade USA500, it requires a lot of discipline and responsiveness. Furthermore, you also need to pay a lot of attention to the SP500 trading schedules, such as the opening of NYSE and the dates of publishing of the United States economic data.
Day Trading
Day trading is the process of buying and selling stocks within a very short time-frame. Like the name suggests, the positions taken in day trading are usually closed before the day closes. In day trading, you rely on market fluctuations to get a profit, which is the why most day traders prefer US500 stocks that bounce a lot.
One challenge of day trading is that you need to follow the selected stock almost all the time so that you only capitalize on the trends that develop during the day and exit on time to reduce losses. Therefore, it is paramount to use the stop-loss orders meticulously to lower your risks.
USA 500 Trading Tips
To help you improve your USA 500 stocks trading strategy, here are some tested and proven tips that you can use.
- Always decide on your take-profit and stop-loss before entering your trade.
- Ensure to manage your risk well to reduce the risk of loss. A good option to consider here is ensuring to limit the risk exposure to less than 5% of all the open trades.
- Trading is a risky undertaking, and you should not take positions when you are bored.
- Economic data can create high volatility in the market. So, you need to be aware of the high-impact economic data when it is being released.
- Create a trading journal that includes all the trades that you have entered and the reason for taking the trade. This will help you to make reviewing your success over time pretty easy.
- Focus on growing your trading skill and improving your strategy.
When you decide to trade USA 500, it is paramount to start with understanding how the index works. Furthermore, you need to identify a good strategy and focus on growing your trading skills.