How to Trade USA 500 Stocks: Strategies and Tips

USA 500, also known as Standard & Poor’s 500 (S&P 500) or US SPX 500, is a market capitalization-weighted index that represents the overall strength of the United States economy. It tracks the 500 most publicly traded companies in the US and is one of the largest indices on the globe based on market capitalization. This post takes a closer look at the common SPX 500 trading strategies and tips for new traders. 

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Important Facts about USA 500

The S&P 500 origin can be traced back to 1923 when the Standard Statistics Company developed an index to capture the most representative 233 companies in the United States at that time. In 1941, the Standard & Poor’s Index was created through the merger of Poor’s Publishing and the Standards Statistics Company. Following the merger, the companies represented in the index was raised from 233 to 411. 

It was not until 1957 that the number of companies in the index was increased to 500. Here are other important facts about S&P 500 that you should know: 

  • Of the original 500 firms in the index, only 86 were still included by the 50th anniversary.
  • When the index was created, the listed stocks were only from three sectors: public service, industry, and rail. 
  • Today, the index is heavily weighted towards information technology, healthcare, communications, and financials.  
  • By December 22nd, 2020, the total S&P 500 market capitalization was $31.61 trillion. 

Benefits of Trading USA 500 Stocks

Whether you are a long-term or short-term trader, S&P 500 offers diversified exposure to stocks of top companies in the US. Other benefits that come with trading USA 500 stocks include: 

  • Clear technical chart patterns that provide distinct entry and exit signals. 
  • USA 500 stocks trade 24/5 to provide traders with high trading flexibility. 
  • S&P 500 stocks are comprehensively covered by analysts to help you make the right trading decision. 

It is important to note that although trading S&P 500 makes it easy to target the most lucrative stocks in the market, it might not work well for traders interested in smaller companies. In such a situation, you might want to also consider S&P SmallCap 600 Index as a method of diversifying your portfolio. Another option could be platinum trading.

Importance of having a Good Trading SPX 500 Strategy 

If you are new to trading stocks, identifying the shares of interest is only the first step. In addition, you need to have a good broker, and more importantly, the right strategy. Here are some of the benefits of having a good US SPX 500 trading strategy. 

  • It can help you remove market noise so that you can easily identify the entry and exit signals. 
  • A strategy makes it possible for traders to determine the level of risks and what they could gain before opening trading positions. 
  • Having a well-thought trading strategy is a good way of taming emotions when trading. The strategy you select allows you to adopt a more structured approach to leverage and risk management. 

Fundamental and Technical Trading Strategies 

Most USA 500 and Tech 100 traders use either technical indicators or fundamentals such as economic data. Here is a demonstration of how the two strategies work. 

  • S&P 500 Trading Using Fundamental Analysis 

When the Federal government releases economic data, it has the potential of moving different stocks, as can GDP and interest rates. For example, the data can signal whether the government should increase interest rates to raise yields on bonds. Such an increase is likely to make investors shift from equities to bonds as a way of optimizing returns. 

When investors shift from equities to bonds, the effect is a drop in the price of the S&P 500 stocks because of the slowing demand. It is very important to factor these fundamentals into your trading strategy because the trend of the selected stock relies on the health of the US economy. 

  • S&P 500 Trading Using Technical Indicators 

Another method of trading US SPX 500 stocks is using technical indicators. When using this strategy, a stock trader relies on technical analysis to raise the probability of his trade becoming successful by identifying buy signals in line with the market trend. Some of the common technical indicators used for this strategy include moving averages, Ichimoku, and trend channels. 

To increase your chance of success when trading S&P 500 stocks, it is important to ensure you understand and test both fundamentals and technical indicators. Remember to always avoid emotions in S&P 500 trading because it can result in losses. For every trade, ensure you have a reason. 

Special Tips for Trading USA 500 Stocks 

  • Carry due diligence when selecting a stock trading broker. Particularly, you should target identifying a broker with low transaction fees and a wide range of stocks.  
  • Make sure to always determine the targeted take profit and stop loss before opening a trading position.
  • Carefully manage your risk when trading S&P 500, Tech 100 or other stocks of interest. As a rule of thumb, try to limit the exposure to less than 5% on the open trades. 
  • Avoid revenge trading or opening positions when you are bored. 
  • When economic data is released, it is likely to create high volatility. So, make sure you know when such data will be released and take advantage of the resultant volatility. 
  • Create a trading journal with all your trades. Then review the trades after some time to determine progress. If you identify areas of strength or weakness, make adjustments to the trading strategy. 
  • Do not simply adopt an USA 500 trading strategy because it worked well for another person. Before adopting such a strategy, make sure to test it well to confirm that it can also work for you. 

If you are new to the stock market, USA 500 stocks can be a good bet, especially when you have a good trading broker and reliable strategy. In addition to being covered comprehensively by analyst, the stocks tend to have good chart patterns that you can rely on to know when to open and close trade positions.

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