Without a doubt, one of the biggest keys to my success has been finding and trading trends.
Trends can let you know where a stock is headed next, when something isn’t right, and even when to buy and sell.
But there are a lot of stocks to choose from.
And individual companies can be more prone to unwanted surprises.
In contrast, a big index like the S&P 500 is so large that it takes a lot to move it. It is made up of 500 of the largest publicly traded companies, after all.
Because of its sheer size, it’s a good indicator of what the overall market is doing.
That’s why it’s my favorite market to trade.
It’s pure.
When trading individual stocks, things are much less clear. There’s always something you won’t know about. Perhaps it’s an earnings downgrade… or a big seller getting out.
Any manner of bad news can send a stock plummeting.
But by trading the S&P 500, I don’t have to worry about all that. My concern is finding out what direction the market is heading.
If the market goes up, I can make money trading long.
And if the market goes down, I can make money going short.
To me, it doesn’t get any purer than that.
Plus, by trading the same product day in and day out, you get much better at predicting its next move. And that can help you become a more profitable trader.
Two Distinct Trends
When a market as large as the S&P 500 trends, there’s big money to be had.
If you check out the chart below, you can see what I mean…
The chart shows two distinct trends.
The first is the steady drop from July through October of last year. This was the result of fears that the Fed was planning on keeping interest rates higher for longer than previously expected.
The S&P 500 was in a downtrend during this period. That’s demonstrated by the first green arrow, which shows where the red 10-day moving average (MA) line crossed below the blue 50-day MA line.
The second is the uptrend since grinding off of that October low. We can see that where the second green arrow is pointing. That’s when the red line crossed over the blue line, starting in the middle of November 2023.
Free Trading Resources
Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.
Since then, the red line has stayed above the blue line. The uptrend has remained intact, and the S&P 500 has continued to move higher.
Using MAs like this is one great way to start targeting overall market trends in your trading.
There’s no doubting the profitability of following these powerful trends. It’s one factor in how I managed to make $274 million in profits when I was running my hedge fund.
And with the right timing, you can set yourself up for life.
Regards,
Larry Benedict
Editor, Trading with Larry Benedict