S&P 500 Trading is considered the benchmark for market performance. If a fund manager can produce better returns than the S&P index, they’re considered a super star. Yet the vast majority of even professional traders fail to achieve that aim.
For this reason, many investors simply want to learn how to invest in S&P index fund and that’s fine. But what if you want to try for more?
Some learn how to trade S&P 500 options, thinking the extra leverage may help them.
In this video I’ll show you a tool that will help you in your personal quest to outperform S&P 500 Trading benchmarks.
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VIDEO TRANSCRIPT
Welcome to this video on S&P 500 Trading. This one is very interesting. One of the most, really powerful things that I have come across and so let’s dig right in.
This is especially good for swing traders and ways to potentially outperform the S and P 500 which is the benchmark that most firms use and so forth. And of course as you probably know, very few people, very few funds outperform the S and P 500 index, so if you can do that, you are already in the top echelon of traders.
So here is one way to attempt to do that. No guarantees of course. But here is a way that, one technique that I use that works very very well for me. So take it, try it and here it is.
YOU CAN’T USE A NORMAL CHART IF YOU WANT TO OUT PERFORM THE STOCK MARKET
What we have here is a little bit of an unusual chart for most people I would say. And if you look over here, we don’t have any prices. We have percentages. And that’s because we are using a chart that is a percent change chart. So what it does is it starts, I have a start 90 days ago, so when I start on the left hand side of the chart. That’s 90 days ago, 3 months. And then of course it starts at 0.
I don’t know if you can see that. Really thin yellow line, but that starts at 0, so it, of course on day 1, it has 0 change. So then, as we begin, going after, the very first day that we begin, then it’s going to go above or below, and that tells us the percentage change that that market has had.
Okay, then we are going to compare, so anyway, you can tell as of this last day on the chart here, the S and Ps at 5.84 %, okay and that’s the black line. The black line on here is always going to be the S & P 500. Now, then I use another line, and I plot another market. In this case, it is the wrestle, the wrestle 2000.
USING PERCENT CHANGE IS THE KEY TO S&P 500 TRADING
We are comparing the percentage change between two markets. So here is the shift, and this is what we are looking for is the shift where now, again remember this magenta line, this purple line is the wrestle 2000, and it shoots above the S & P 500, and now it is, almost made twice as much money on a percentage basis than the S & P 500. 5%, 10%.
So that’s great, okay now that’s the easy way to read it, that’s the beginner’s way to read it, and not necessarily the best way. So you could look for simple cross of the two markets here. Alright, that’s one way.
A GREAT INDICATOR FOR THE SPX TRADING VIEW
Another way is to use an indicator like this, which is just a simple mathematical formula. It’s called the spread, or sometimes it’s called the difference, and all it does is it measures the difference between these 2 lines. So you make one as the major one and then the other as the secondary one. So what we are doing is, we are really in this case we are going to have all our charts the S&P 500 index.
That’s going to be our standard and we are looking for market that may outperform it. So we are going to have this line, have the dominant market be our comparison market. So if you look at this, what you see is that this line is going down down down down down down. And that means of course that are secondary market, the wrestle on this case is underperforming the S & P.
LOOKING FOR A “SHIFT” IN THE RELATIONSHIP BETWEEN THE S&P INDEX FUND AND ANOTHER MARKET
Then we are looking for a shift. So this will give us a little earlier reading potentially, where if we could draw for example, a trend line here, unless it breaks that trend line, get in there, and then potentially get in a little bit earlier here, instead of here. And that gives us more profits. We are getting in earlier.
Another thing that you can do is you can draw horizontal lines like this, gets you in about the same time at this point. Okay, so that’s all great. Gets in Just a little earlier. Now let’s compare with some other markets.
AN EXAMPLE OF HOW TO POTENTIALLY OUT PERFORM S&P 500 TRADING
So we could go through the major indices and go to the NASDAQ composite. Now here, again the black line is the S & P, the magenta line is the market we are comparing it to. In this case, the NASDAK composite. It’s underperforming. It’s only made 3.9% as opposed to 5.4%. And now you notice the difference line is just kind of going sideways. And it had gone up, now this looks weird.
The way we have to look at this is, that the spread, actually like calling this indicator the spread indicator. The spread between the 2 lines is that distance there which is, well bigger than that distance here. So if you would have bought here, you would have made more money than if you would have bought the S&P 500 at this time. Notice that if you bought the composite.
Even though the magenta line is still under the black, and that’s why, you know if you bought this, breaking this high here, or trend line here, you would have made money because that’s closing the spread, and therefore during this period of time, it’s catching up. Now this period of time, it’s losing ground again and that’s why this thing goes down. And the spread between the 2 lines is much bigger.
THE VARIABLES
So a lot, of it depends on when you get in, you get out, things are in flux, just like everything in the market. They are dynamic flux of up and down. And so it’s not always a long term strategy. It’s a Swing trading strategy. Which is holding overnight but for short periods of time.
Alright, let’s look at couple of other markets just out of interest. So now if we go down here, you can do this for example with, just deciding to what do I want to trade? alright, so for example right now, we have got great opportunities with currencies, but if you don’t want to trade Spot forex, you can always trade, and you can do this with Spot forex, you can do it with futures, you can do it, in this case with ETFs. So say well, maybe I want to invest in currencies.
IT’S ALL ABOUT TIMING IN THE STOCK MARKET
Well, probably not so much right now at least. Because here, again it’s all about timing, right. So here, here, here, here, here, it’s underperforming. That’s the magenta line, that’s the euro. That’s euro. And then it caught up, and then we broke that line, yes you would have made more money buying the euro, than buying the S & P 500. And then we get another shift again. Crossing of the lines here, breaking of the trend line here, and then you would be like, ‘ah no, don’t want to be in the Euro anymore, now I want to be back in and be doing S&P 500 trading.’
So how do we get some indication as to when that might occur. Well during this time, these markets are moving pretty much similar way. The S & P 500 and the emerging markets, and not seen by the spread indicator. Just kind of going sideways here. So what the opportunity is, we look for it again, the cross of the lines, but more specifically I like to look for this breakdown here, this support.
THE ALL IMPORTANT “SHIFT”
That’s the key. That’s where, okay, now we are getting a shift where in this case, the S & P 500 index is outperforming, and it’s going up a bit, but the emerging markets are going down dramatically.Then again, another breakdown occurring there. And that’s where you could go short.
To outperform the S&P 500 index, you don’t always have to be buying something that is doing better on a percentage basis. Being more bullish in other words. So you can get a little tricky and say, hey I am going to short markets that are going down more than the S & P is going up. And that’s another way to potentially, financially outperform doing the S&P 500 trading.
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