The capitalization markets which consist of 500 large companies have common stocks listed on the NYSE or NASDAQ. This company weights are determined by the S&P Dow Jones Indices commonly known as The Stand and Poor’s 500.The stable volatility and liquidity of S&P 500 have made trading S&P popular choice among the traders.
Most professional traders prefer to trade the S&P 500 in the longer time frame and carry their trade for an extended period in order to make the substantial profit from trading the S&P 500.Professional traders use three points Hull 55 MA trading technique to trade the S&P in the longer time frame. Let’s see how the professional trade the S&P for the long term:
Figure: Trading the S&P 500 with three points Hull 55 MA trading strategy
The strategy is very simple but extremely effective for trading the S&P 500 in the longer time frame. Professional traders draw a trend line with minimum three connecting points. In the above figure, the valid trend line has three connecting points a, b and c. It’s imperative that prices form a wedge-like structure while trading in the trend line. The only indicator which is used in this trading strategy is the Hull Moving average. The period is set 55 while trading the daily S&P 500 chart.
Price makes a three bounce in the trend line support. In the fourth time when the price hits the trend line, it breaches the support and starts a new bearish trend in the market. Professional traders use the 55 HMA as confirmation signal indicator of the new bearish trend. In the above figure, the 55HMA breached the trend line along with price which triggers the short trade for the professional trader. Some conservative traders take retrace entry after the successful breakout of the trend line .most professional traders set their stop loss just above the trend line which turned into resistance and rides the new downtrend for a long time.