S&P 500 Index is one of the top index in US financial markets. This index is made up by the top 500 US companies and those are related to NASDAQ, & NYSE. All these companies are traded in publicly. Because there are top 500 U.S companies included in this index that’s why its one of the large cap index of USA. In this index the market movement depend upon the market capitalization weight of those 500 companies.
Lets take a look that how market can perform this year in 2020, I would like to share some of my own price action trading strategies based patterns with you those can provide you a lot of help to understand the future movements in S&500 Index. According to the long term goal market is still looking bullish,big whales are still moving the market toward the upside on the other hand sellers has shown some sign of sell too and if you are looking to buy the better to wait for breakout instead of buying this sell whale area right now which is (2300 to 3000 area).
First of all we should check that what market is showing as a long term goal prospective, According to the long term market scenario market trend is still looking bullish as shown in the image below.
According to the chart S&P 500 Index has made a very good uptrend chart pattern since the year of 2009, market has been working very well in a uptrend shape as shown above in the diagram.. A good sequence of Higher and Higher has been seen since 2010. As we can see clearly in the chart that since last 7,8 year’s market is trending upside and time to time profit booking has been seen from the big whales side.
But right we have to be very careful because this kind of chart pattern can be so much dangerous, this is a pattern who mostly force normal people to react, this is the chart who make people full of encouragement and excitement. There is a saying that Sell on High and Buy on Low so we have to work on that theory,
According to the current market scenario there are two types of possibilities those can take place in the index, According to the long term prospective yes its up but on the other hand whales are making a shape of sell too,means to say it can be a profit booking scenario as we had seen in the past (2015) market or it can be downtrend sign. Lets discuss about those two possibilites by the help of diagrams, they are as follows:
- Scenario 1:
As we can see below in the chart the first scenario can be related about a bearish market, no doubt in it that the long term trend is up but this kind of pattern wihch is closer to make a inverted head and shoulder pattern should not be avoided by traders. Everytime whenever a downfall start in financial markets this kind of pattern always starts to build up.
So the question is what we should analyze to check that whether its a uptrend or downtrend from here? During a down trend market sign better to focus on support and resistance areas along with it we should follow technical chart patterns also. But the main thing is always ot understand the buyers and sellers trading psychology.
A weekly chart of S&P 500 Index shown above, according to the 1st scenario we may able to see one inverted head and shoulder pattern on top and a downfall may be possible in the market of S&P 500 index. As I has said above that support and resistance is one of the crucial and profitable analysis when we have these kinds of chart patterns. Since October 2018 to December 2018 a big decline had been seen in the S&P 500 index but after that more than 60% recovery has been seen in chart.
Now from here market can test the upside resistance areas and after that a downfall can be seen, the first resistance is on 2800 and the second resistance major resistance area is on 2874 and if this downfall is confirmed the extra piece as shown in chart (fake) will be a trap for all the buyers even they are already trapped, and more downfall may possible in the index.
- How to use this chart pattern as a strategy?
For that first of all as said the knowledge and understanding of big whales would be very necessary to gain.Trader’s can take the advantage of this pattern and trading can be done in both sides, if we see that market is not going down and again going up after the confirmation of our buy and sell, then we can do trade with the other possibility that is buying the price instead of selling. Means to say that the understanding of big whales would give us a great understanding to judge that what kind of pattern they are making here. For example if something is not going down it means it have to go up. So try to think always about both sides, and never get stick to one side thinking or psychology that can be dangerous.
Personally I like to do trade with a sell side when I have a pattern like this. But the confirmation should be on table first and without confirmation there is no meaning of trading at all. I hope that you liked the content, for more information and help just post your comment below, or you can also catch us by contact us area. Regarding stop loss I would like to suggest the higher peak, or the HH area which can be called as our 3rd Resistance area.
Its also important to check that if we are getting a sell sign on the 1st resistance area during that sell our stop loss should be on the 2nd resistance or for better safety we can choose the 3rd resistance area also.
- Scenario 2:
Now this is so common that if in the first scenario we was down then in the second scenario we are gonna talk about uptrend. The second possibility is telling us that a uptrend can be seen once again as same like the year 2016, the scenario can be same compare to the last one as shown in the diagram below. As we can see market had made a sideways pattern for some time or an consolidation phase for almost more than one year. Right now market is behaving the same and this is another possibility of the market that uptrend can be continue once again from here.
It is possible that market can cross the area or resistance of 2940 – 2950 and a breakout situation may arise upside. If we see that market makes a good based above 2940 and 2950 more bullish movement can come in the index. So these were the two possibilities those can appear in front of us in the year of 2019. Lets see how it does work, furthermore lets talk that how to do trade during an uptrend breakout area.
- How to use this pattern as a strategy?
During an uptrend breakout you have to make sure that an buy order should not be opened until we don’t have a good base market. Because so many time I have seen that market start’s to come back once again after a breakout, so better to wait for the right trading patterns and confirmations, and if once we are getting a right sign to do trade for sure we can open our orders, the best condition would be to get a double bottom pattern after the breakout. Or a higher high and higher low sequence can also give us an indication to buy.furthermore if you have more questions and doubts just write down in comment section.
- Final Words:
its essential to understand that how big players move the market and what kind of trend they are following in present time, a trading strategy would not work properly untill we don’t have an idea that how to follow the footprints of big players. The best thing would be to follow the big players which can prodcue good profit at the end. Along with it financial markets contain risk and these strategies are not 100% confirmation of buy and sell. Please do proper research before buying and selling in financial markets.