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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. Plus, individual companies can be 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 can be 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…

S&P 500 (SPX) Index

Source: eSignal

This year’s chart shows two distinct trends.

The first is the sharp drop from late February into April this year. This happened due to fears about the impact of tariffs on the economy and inflation. At the time, that put potential interest rate cuts on hold.

The S&P 500 was in a downtrend during this period. That’s demonstrated by the left 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 those April lows. That was confirmed with the red line crossing above the blue line (right arrow) in early May.

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 to Spot Trends

Using MAs like this is one great way to start targeting overall market trends in your trading.

And they can be a good indicator to watch when trends begin to move back the other way as well. I talk a lot about “mean reversion” in these pages because trading reversals is another great way to profit.

There’s no doubting the profitability of using MAs in your trading. 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, even if you capture just a part of one of these moves, you can set yourself up for life.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict