Chapter 1: Why Traders Strike Out With the S&P
He was known as Mr. October. The one and only, incomparable Reggie Jackson established his reputation by helping the A’s and Yankees achieve post-season greatness.
One of the sport’s most decorated hitters - he also held one dubious distinction: The all-time leader in strikeouts.
That’s right, when Reggie stepped to the plate, pitchers had the odds in their favor.
Imagine that. One of baseball’s greats was more often than not… a liability at the plate. Unfortunately, if you’re a retail trader in any market, odds are pretty good that you can relate to the great Reggie Jackson.
You can blame any strikeout king you like. Nolan Ryan, Randy Johnson, Pedro Martinez. The S&P 500 has them all beat. Every minute, of every day, a trader somewhere is walking back, head hung and a cleared account.
There’s no ump screaming. There’s no crowd cheering (or jeering). Nope. These strikeouts sadly take place in the privacy of a home office as the last bits of precious trading capital are gobbled up by the market and broker commissions.
Why? Simple. People think they know the S&P, but they don’t. Sure they’ve been watching it for years - but they have no real idea what they’re really watching. They think they know how it behaves - but this market has dimensions that even seasoned traders miss.
Here’s the saddest part: The S&P has no secrets. For the pros, there are no mysteries to this incredible market. It’s all right there in front of you - as long as you know what to look for.
To start, if you’re stepping up to the plate in the massive stadium of the S&P as though it’s any other market, you’re wrong. You’re not just dealing with the ‘straw that stirs the drink’. You’re dealing with the ice, the lowball glass and the entire bottle of booze that the market is working with.
Put another way, there are several factors that influence how price action in this market behaves. It doesn’t take much to send it ripping or dipping in one direction or the other.
Many traders realize this and take the first fatal step in trading this market: Over-complicating their charts with a bunch of junk.
Think of your trading session with the S&P as a first date. Do you think you'll increase your odds of getting lucky if you bring your mom, the weather man, a car mechanic and calculator?
The same is true with the S&P. Bring as many indicators, bands and oscillators as you like. It will likely be a short session filled with eye rolls and awkward silence. All while your account is cleared.
Less is more. You can actually generate a profit with the S&P with just a handful of simple signals - not a bunch of lines.
The biggest issue that kills every account? Not having a plan to manage risk and take losses. If you don't know how much you can afford to lose on a trade - you're sealing your fate before you even begin.
You’ve probably heard this before. You may have even experienced it, perhaps with a blown account (or two) in the rear-view mirror.
Well, that changes right here and now.
Let’s focus on the first change you can make to win with the S&P. Regardless of your trading level or experience.