How To Trade The S&P 500: Buy Low And Sell High.

All the research I`ve conducted over the years on the S&P 500 Index point to the same conclusion. It must be traded countertrend, at least in the very short term. This is a piece I have found on TraderFeed that confirms this view:

"Let's take the S&P 500 Index (SPY) over the past five years:

If we bought rises above the 100-day moving average and then went short on moves below the average, we would have made a total of 56.6 points or about 56%. That is despite the fact that only 8 out of 46 trades were winners.

If, however, we traded the system with a 50-day moving average, we would have generated 98 trades with 17 winners. That would have lost us 10.75 points or over 10%.

Suppose that we now trade SPY with the same system, only using a 20-day moving average. Now we generate 166 trades, with 44 winners, but the system loses 23.05 points or over 20%.

Moving even shorter term, we can define a system that would buy on moves above short-term envelopes and sells on moves below those. Using envelopes created by high prices over the past 10 sessions and low prices over the past 8 sessions, that system traded 249 times over the past five years with 67 winners. That system would have lost essentially all the trader's money over five years.

What that says is that, if we're trading in a trend following mode, the more actively we trade (using shorter-term definitions of trend), the more money we lose. This is an important reason why short-term traders who have bought on strength and sold on weakness have performed poorly in recent years." in TraderFeed