Are you considering starting USA 500 stock trading? It can be a very rewarding undertaking, but you also need to be extra careful because the risk of losing your capital always looms. As a new trader, trading the USA 500 can be a good idea because you get to narrow down to the leading firms to increase the chances of making good returns on investment. Before you can get started, here are the four most important things that you need to know.
Understand What S&P 500 Is
When it comes to trading stocks, information is power. This is why you need to gather as much information as possible and use it to make the right decisions. So, what is S&P 500?
S&P, shortening for Standard & Poor’s, is one of the top indices in the US, and it represents the top 500 largest firms based on their market capitalization. The index can be traced back to the 19th century from two companies, the Standards Statistics Bureau and Poor’s Publishing. The two firms merged in 1941 to form the Standards $ Poors.
The S&P 500 Index was launched in 1957 and became the first computer-generated index to get published every day. The index contains the 500 largest stocks that are traded on NASDAQ and New York Stock Exchange. Therefore, it is used to gauge the overall health of the companies and the entire US economy. So, if your trading focus is to work with the leading stocks in the US, the USA 500 might be a great point to start.
Common USA 500 Stocks Trading Strategies
You might have heard the common saying that “failing to plan is planning to fail.” Well, one of the places where its application is evident is in the stock market. As a beginner, you need to have a good plan, which calls for a clear strategy. At this point, you need to appreciate that trading stocks is a risky undertaking, and failing to plan well can increase the risk of losing money. Some common strategies that you might want to consider for trading USA 500 stocks include:
- Day Trading
As the name suggests, a day trading strategy is a method of trading where you open positions and close them before the end of the day. So, no position is held overnight. Unlike traditionally, when only experts in stock markets could trade, you can also day trade using an appropriate platform, such as capex.com. Note that this strategy might require you to use a lot of time in front of the computer screen to take advantage of the short price movements.
- Position Trading
If you do not prefer day trading stocks, another strategy might be position trading. In this method, you take position over a longer period, maybe days or months. This means that you focus on the longer trends than the short daily ones. The main advantage of position trading compared to day trading is that you do not need to take a lot of time on your trading chart. Once you study the market and open a position, you can check it later, maybe a couple of days or weeks.
- Swing Trading
When the trend of a stock breaks, it is time for swing traders to take positions. At the end of every trend, mainly around the areas of resistance or support, there is higher price volatility before a new trend sets in. Swing traders target buying when this volatility sets in and hold their positions for more than a day. However, the period that swing traders hold positions is shorter compared to that of trend traders.
How to Keep Your Risk Low
As we highlighted earlier, trading stocks is a risky undertaking and you need to be extra careful when engaging in it. This is why you should include an appropriate risk-management plan in your strategy. Indeed, there are a number of methods that you can opt to use, and we are going to list them:
- Consider Using the 1% Rule
If you are new to the stock market, this rule might come in handy to help keep the losses as low as possible. The rule indicates that you should never put more than 1% of your entire capital on a single trade. This implies that if you have $200,000, every position you take should be no more than $20,000.
- Use Take-Profit and Stop-Loss Orders
The stop-loss is the point where a trader wants to sell the selected stock and avoid further losses when the price moves against his/her prediction. It allows you to exit the market instead of incurring more losses. If a stock breaks below a major support level, most traders sell as soon as possible because it signals the possibility of a further downtrend.
- Diversifying
One of the recommended methods of ensuring you get the most from your trades is avoiding putting all eggs in one basket. If you only select one trading instrument, such a USA 500 stocks, the risk of incurring huge losses can be high. This is why you should diversify your portfolio by including other trading instruments, such as platinum trading, forex trading, and ETF trading.
The Brokers to Work With
Another crucial component that you need to get right is the trading broker. Here, the goal is to identify a broker with a good platform that makes trading easy. For example, if you need to follow the price of the selected stock, does the broker have a mobile trading app? Other attributes that indicate a good broker include low transaction charges, responsive customer support, and many trading instruments. capex.com is one such broker, and you can count on it to make trading more enjoyable.
If you are new to stock trading, it is essential to try and understand the market as much as possible. As we have highlighted in this post, you also need a good broker and an appropriate strategy. Make sure to also maintain a trading journal for regular review and progressively improve your trading skills.