S&P 500 INDEX DAY TRADING STRATEGYWHY TRADE S&P 500 INDEX?
Off the bat, you need to know that the S&P index moves a lot. In other words, the S&P 500 volatility is high. In the stock market, we have something called the VIX, which measures the implied volatility (expectation of future volatility) of the S&P 500 Index options.
For those of you who don’t know what’s VIX trading just search for "How to Trade VIX Strategies– Wall Street’s Fear Index."
Higher S&P trading volatility means more trading opportunities for you. If you are a relatively risk-tolerant trader, exploring the stock market can be very profitable.
You’re going to have price movements that are way far and beyond what you see in the Forex currency market.
Secondly, trading the S&P 500 will give you diversified exposure to the entire US stock market. Rather than simply owning one single stock that might or might not perform well, the S&P 500 index will give you exposure to 500 large-cap US companies.
Your performance won’t be tight to the performance of one single stock, so you can increase the chances of making a profit.
If you want to trade the US stock indices you need to know when is the best time to trade the S&P 500. In other words, we’ll examine what are the most volatile S&P 500 trading hours.
WHEN TO TRADE THE S&P 500?
The best time to trade the S&P 500 index is when the US session begins because that’s when the trading volume is the highest.
The US day trading futures market opens at 9:30 US EST.
As you'll find while trading with every market, the S&P 500 price vibrates its own unique way.
If you’re a day trader, you might wonder:
When is the best time to trade S&P 500?
The best times to trade SPX is during the hours with the highest volume:
Between 9:30 AM – 11:00 AM EST, the US stock market officially opens which overlaps with the last 1.5 hours of European trading.
Between 2:00 PM – 4:00 PM EST prior to the stock market close the professional trading activity increases again.
Usually, those are the most liquid hour of SPX trading. As a “consequence” of higher liquidity, the S&P 500 buy and sell spreads are much tighter during this time window.
To verify if this is true, check out the 15-minute chart with an 8-period ATR (Average True Range). This will measure the average range of a 2-hour period.
We must ensure that we use the best S&P 500 trading platform.
WHAT'S THE BEST S&P 500 TRADING PLATFORM?
In this section, we’re going to reveal what is the best futures trading strategies software platform.
First, it’s important to know that you can start trading the S&P 500 index with multiple financial products like:
Futures.
Options.
Exchange-Traded Funds (ETFs).
Investment Funds.
Contracts for Difference (CFDs).
Spread trading.
So depending on the financial instrument used and your preferred broker you can trade the S&P 500 on the following trading platforms:
TradeStation – low commission trading platform.
Thinkorswim – best for options trading.
E*Trade – most trusted futures trading platform.
TD Ameritrade – best desktop platform.
Interactive Brokers TWS – best for professional traders.
MetaTrader 4 trading strategies, MetaTrader 5 and cTrader – best for retail traders.
Once you have decided which trading platform suits better your trading style, let’s see your guide to trade SP 500.
HOW TO TRADE THE S&P 500?
We’re going to outline few trading instructions to keep in mind when trading S&P 500 index.
Even when it seems like the S&P 500 price seems like consolidating, the same level of choppiness you see with Forex trading won’t occur that often with the US stock indices.
Under this circumstance, if you want to learn how to trade the S&P 500 index, you kind of know-how to trade in volatile markets.
If you want to learn more about volatility trading, please check out on the internet: Volatility trading strategy - Profit Without Forecasting Price Direction.
You can trade the US indices via:
Contracts for Difference (CFDs) which tracks the price movement of the underlying instrument. If the S&P 500 price is going up the CFD contract will rise and vice versa.
Exchange-Traded Funds (ETFs) which is even better. The biggest and most heavily traded ETF in the world is the SPDR S&P 500 ETF Trust Fund also known as the SPY.
For small investors, it’s better to trade the S&P 500 index via ETFs or CFDs due to the use of leverage. When trading SPDR S&P 500 ETF, traders can go both long and short. So, you can profit even when the market goes down.
Now, we’re going to share with you our favorite S&P trading strategy.
S&P TRADING STRATEGY
Having a systematic methodology for trading the SPX is of utmost importance.
Over the long run, the S&P 500 index has the tendency to gradually climb and every once in a while we get sharp sell-offs that can lead to stock market recessions. And the process repeats all over again, due to the fractal trading nature of the S&P 500 price.
Now, what’s the main takeaway.
If your answer is:
“It’s more profitable to buy and hold the S&P 500 index, you’re right.”
Did you know that if you bought the S&P 500 index at the close of each trading session and took a profit at the next open, you could have gained 13.3 percent return in 2019. This means you could have singlehandedly outperformed many of Wall Street's most respected hedge funds.
Note* This S&P trading strategy would have given you 3 wins and 1 loss if traded over the past 4 trading sessions.
However, this S&P trading strategy doesn’t have any strong backing to suggest it will work in the coming years. That’s why we need to develop an S&P best trading system with more consistency that can work year after year.
So, do you want to learn a simple and timeless way to trade the S&P 500 successfully?
With that in mind here is a profitable S&P trading strategy.
First, let’s lay down the things needed to trade successfully the S&P trading strategy:
3-period SMA (simple moving average strategy) calculated using the low prices
3-period SMA (simple moving average) calculated using the high prices
Note* The S&P price will be confined between the 2 moving averages 85% of the time.
Here are the entry and exit rules of the S&P trading system:
Buy at the 3-SMA low and exit your trade at the 3-SMA high.
For selling is the opposite: sell at 3-SMA high and exit your trade at the 3-SMA low.
The stop loss placement is above/below the 3-SMA low/3-SMA high.
Now, to add more confluence for our S&P 500 trading signals, we’re going to add one more element:
We’re only going to buy when we touch the 3-SMA low if both moving averages are stretching to the upside.
Conversely, we’re only going to sell when we touch the 3-SMA high if both moving averages are stretching to the downside.
As you can tell this S&P 500 trading strategy is a trend following strategy that takes advantage of the small price retracement.
