Trading S&P 500 Price Progressions: The Basics

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Trading S&P 500 Price Progressions: The Basics

S&P 500 index futures have grown in popularity over the last decade, after the SEC’s pattern day trading regulation, which caused retail money to flee stocks and into Globex, CME’s 24-hour electronic trading platform. Volume reached an all-time high in 2011, propelled by a global shift in risk from individual stocks to broad macro instruments, fueled by an explosion of ultra-modern derivative products. The three futures contracts, together with the Nasdaq100 and Russell 2000 Index futures, provide dependable road maps for active traders looking for intraday buy and sell signals.

Futures trading in the hours between New York’s U.S. equities closing and the following morning’s open catches market-moving events on Asian and European exchanges. As a result, short-term convergence-divergence correlations emerge, which anticipate price movement during normal trading hours.

The S&P 500 is the most popular stock futures contract in the world, typically predicting broad directional impulses in the absence of other contracts or market signals.

Active traders may play S&P 500 index futures in two ways. First, take direct risk in response to traditional technical analysis signs like as breakouts, breakdowns, and pullbacks. Second, in highly correlated contexts where thousands of shares, currencies, and other global markets move in tandem with, or in opposition to, futures contracts, apply feedback to other instruments. This synchrony is frequent at critical turning periods when institutional capital assigns risk based on broad macro dynamics rather than specific security characteristics.

Price Progression and S&P 500 Signals

Image by Sabrina Jiang © Investopedia2021

Let’s take a look at a typical S&P 500 price movement and how it predicted a large drop while alerting active traders with a series of short-term buy and sell signals. We’ll use the 60-minute, 24-hour chart, which is a favorite among futures traders since it catches international events while showing significant levels that aren’t reached during the US session. Between February 20 and 25, the contract rallies from 2082 to 2118 before reversing. A Fibonacci grid extended over the price swing depicts the gradual deterioration that results in a March 6 collapse.

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2100 pops up at the 50% Fibonacci retracement, emphasizing its significance as price falls down and tries support twice (1,2) before and three times after the final high print (3,4,5).These five tests, in turn, show a larger support zone between 2100 and 2105. (blue lines).After the fifth test, the contract rises to a four-day high (6) and then sells down, recording the first lower high since Feb.20. This is a typical symptom of weakness, as defined by the Dow Theory over a century ago. Although it was first noticed in the DJ Industrial and Railroad Averages, it performs very well as a signal generator on both intraday and daily futures charts.

The lower high is followed by a sell-off (7) that breaches the support zone. Because the algorithms that rule Globex try to wipe out order volume on both sides before initiating broad directional impulses, first violations seldom result in quick trend adjustments in futures markets. This bias adds to a short squeeze above the support zone (8), which draws intense selling pressure and leads to a deeper low (9) the next session. The February swing bottom (red line) is tested, and the.786 retracement provides support. The contract bounces to support once again and prints two failed tests (10,11) before rolling over in a breakdown that accelerates as it undercuts the previous lows, falling another 20 points in four hours.

The event chronology depicts how the S&P 500 price movement correlates with significant macro impulses, which are typically on the other side of the world. This instructs the astute trader to pay special attention to economic and political triggers, since they indicate when institutional capital is likely to pursue the most aggressive methods. It’s particularly illuminating when positive news like ECB quantitative easing and solid US employment statistics fail to lift the contract above a broken support level, as it occurred on March 5 and 6.

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The Bottom Line

The S&P 500 index futures contract is an excellent guide for short-term market timing and direction. Keep an eye on the 24-hour and 60-minute charts as they develop support and resistance levels, matching risk exposure with testing that occurs in response to market-moving economic and political events.

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