Never Fear Losses Again In The S&P 500

Why traders strike out with the S&P 500 (well before they even take a swing) 

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. 

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. 

What you should watch for in the S&P (while taking your blood pressure down a notch) 

‘I was reminded that when we lose and I strike out, a billion people in China don’t care.’ That quote from Reggie Jackson pretty much sums up his approach when stepping to the plate. Swing for the fences and apologize later… or never if George Steinbrenner was involved. 

It might not be a billion people in China, but there are certainly plenty of institutional traders who simply don’t care how or when you strike out.

If it’s of any comfort – they love it. They have their pick of millions of retail traders offering up meatball trades – literally every minute. It’s easy money and it’s always there for the taking.

Here’s a big reason many retail traders lose big-time in the S&P: They’re watching the S&P.

Yep. You read that right. They’re trading the S&P and they’re losing… because they’re watching it. Okay, let’s add an important detail: They’re ONLY watching the S&P – which means they are missing out on clear indicators that sit directly outside this world-changing index. 

Specifically, there are stock predictor sequences OUTSIDE the index that give clear, early and easy-to-follow guidance on where the S&P 500 is headed.

While millions of traders stare at their S&P eMini, the SPY, or any other instrument and then bang their heads against the wall – the big boys (the institutional traders) are looking elsewhere. 

So where exactly is ‘elsewhere’? It’s the 5,000 stocks outside the S&P 500 that ultimately drive the sector behavior that you end up seeing within.

What many traders overlook is the fact that there are thousands of middle market, publicly traded companies that simply aren’t part of the S&P. Individually, they won’t sway the market – but when you put them together… you get an amazing picture of what is about to take place.

For those of us who don’t have a super computer for a brain, analyzing the behavior of 5,000 stocks simply isn’t realistic.

Translating that behavior into information you can use in real time to take trades? Out of the question, unless you have help. 

Here’s the good news: There are indicators that will help you easily spot these predictor sequences in real time. Giving you the time you need to analyze and then size up a trade that works for you. 

Best of all, you are using leading intelligence to make your entry – before the S&P fully responds. This is the advantage that most retail traders don’t even realize they’re missing. There are thousands of stocks reacting to market dynamics well before the S&P makes a move. Monitor them and get the best predictive indicator on where price will head! 

If you were able to simultaneously rip open the charts of the thousands of stocks in the same sectors across the Dow Jones, Nasdaq and NYSE – you would have seen it coming. 

With plenty of time to spare. 

Now you can go from one chart to the next, frantically trying to figure out what the Dow, NYSE and Nasdaq are trying to tell you. And if you ever knew what Lassie was saying when she came barking, then this approach is for you. 

For the rest of us? How about just a simple indicator that does the scanning for you based on the signals that are surfacing across thousands of stocks? 

Like thousands of butterflies flapping their wings in another market – the telltale signs of a big move in the S&P appear elsewhere.

Now that you know where to look, and what to scan for – let’s see our new-found perspective in action. And by ‘in action’ we’re talking about one thing: daily profits. 

Going from strikeouts to daily profits (a simple, step-by-step process to taming the S&P) 

They call it the golden sombrero. The not-so-glorious honor of managing to strike out four times in a single game. Reggie Jackson managed this feat 23 times, beaten only by Ryan Howard who had 27. 

Pick any side of the analogy that you like – being the hitter swinging for the fences… or the pitcher trying to sit batters down. If you’re spending too much time confirming trades in the S&P, you’re going to lose. 

Just like baseball, there is no shortage of gadgets, indicators or new-fangled ways to confirm a trade.

Here’s a secret the pros know: You don’t have to use expensive indicators and waste time doing confirmations. Or worse yet, confirmations of confirmations.

Waiting for the perfect confirmation to pull the trigger only makes things worse. Here are three simple reasons why: 

1. Inefficient: The time you’re spending looking for confirmation is time that you could be using to scout other entries or set your risk/reward targets. 
2. Late, late, late: By the time you receive the confirmation you’re really looking for – that is, 100% assurance – you’re already late. 
3. Missed Opportunity: You’ll miss way more opportunities than you win by looking for confirmation. 

We’re willing to bet that if you took your current strategy and traded for a month only taking entries with multiple confirmations… your results would be about the same if you went with the ‘run-and-gun’ approach. 

Let’s be clear. The issue isn’t the confirmation. It’s the paralysis by analysis that kills profits. The second-guessing. The bad timing.

If we’re being honest? The need for confirmation isn’t about a better trading process. It’s the scars of prior losses that are coming back to haunt you. And it’s those scars that are holding you back. 

So, let’s set aside the need for constant confirmation and zero in on a process for higher daily S&P 500 profits. The formula is shockingly simple. We’re really looking for a few basics. 

• Basic Setups: One of the greatest trading aspects about the S&P is that once you have a predictive indication of where it’s headed – the price action you need to trade is very straightforward. 
• U.S. Market Sequences: Using the NYSE, Dow and Nasdaq as your treasure trove of stocks that will point you in the right direction – you simply need the predictor sequences to watch for. 
• Off-Hours Supplements: There are strategies you can execute prior to open and after close that allow you to maximize your profits – while reducing risk. 

Let’s look at a basic example that every trader will encounter. 

Non-Farm Payroll: One of the biggest trading events on the calendar – and a terrific way to ruin a weekend. The retail traders? They trade the initial price action at the announcement. That strategy loses as much as it wins – if not way, way more. 

No, in this instance, we’re looking for the fade and the prevailing trend. The sort of setup that the rest of the market would point out for us. 

Check out the market reaction to a recent report. The following three steps can be followed over and over. 

1.Initial News: The report didn’t meet expectations and the S&P spewed its guts, almost right away. A risky day, and most likely a bad day for the retail traders. 

Note how price action tested an identified area of support before making its move. A good reference point for an entry – but we’re looking for an early indicator. 

>> Key Action Item: Watch the initial market reaction – but steer clear of the volatility in the first 15 minutes. 

2. Monitor the Outside Indicators: Yes, there are some fantastic indicators that will scan the thousands of stocks that are simultaneously responding to this market event (or not). But for purposes of this example, let’s simply monitor the big three indexes – DJ, NYSE and Nasdaq. 

Despite the initial downward move in the S&P there’s an important detail that markets outside the S&P (and the thousands of stocks within) picked up on. The overall economic news was good, DESPITE the miss.

As a result, if you look at the DJ, NYSE and Nasdaq composites – you can immediately see that they were already moving up. 

AT THE SAME TIME that the S&P was violently swinging back and forth. 

>> Key Action Item: Check the direction of the major indexes outside the S&P in the following 30-60 minutes after the initial reaction. 

3. Exit & Monitor the Off Hours: Unless you’re taking a long-term position trade, or you love playing roulette with your account – exit and take your profits before close.

While doing so, keep an eye on the other composites for pull-back corrections and continuations of the trend.

These are golden opportunities to take advantage of pre-market steam that blows off before the open and grab early ticks before the opening bell. Many times you’ll see the overwhelming trend from the prior day pick back up after the pull-back, and you can enter for additional profits.

>> Key Action Item: Wait for pull-back in the off-hours and then resume the trend with the rest of the market before the open. 

Whatever happens… Leave the guessing, the chop and the losses for the other retail traders out there. Why take wild guesses when you can simply monitor the driving forces behind each S&P move? 

So, what’s holding you back? If you’re like any other red-blooded trader on this planet we call earth… it’s the thought of losses. Especially if you’ve encountered them before.

Let’s get rid of that mentality now. 

A way to never fear losses again (the myths you need to let go of to win)

Staring down prior losses is like facing a slugger at the plate who has homered off you every at-bat. Getting past this requires the mindset of an ace. 

To start? You have to tempt them at the edges. The greats, like Sandy Koufax, Greg Maddux and Nolan Ryan all knew how to do this. They rarely tried pitching down the middle of the plate and they knew how to set a hitter up to chase something well outside the strike zone. 

A pitch down the middle? That’s a homer waiting to happen.

For a trader, that’s a blowout waiting to happen. 

Here’s an important detail to remember: Blowouts don’t happen in one trade. They sneak up on you with a series of seemingly small events and decisions.

Individually each decision can be justified. Put them together, and you often have a detailed painting depicting a blown account. 

Each of these ‘decisions’ is predicated on a myth that we tell ourselves… 

One of the biggest: You have to have a high winning percentage to make money. While this isn’t true, many traders believe this with all their heart and mind. This leads them to stay in losers way longer than they should. It leads them to take trades they shouldn’t. 

Here’s a refreshing reality: Even if you’re right less than HALF the time, you can still make money in the S&P 500.

In fact, there is a simple equation that removes the need to be completely right or wrong about every trade. Better yet, it takes out the factor of ‘luck’ which many traders come to believe they need to have on their side. 

We call it ‘anti-blowout’ math. Here’s how it works. 

Start with a $5,000 account. Set your max risk at 5%. 

It would take you 33 straight losses to blow out that account. The floor is at 33, because once you’re below $500 your broker cuts you off – there isn’t enough margin for you to execute a trade. 

Have you ever taken 15, let alone 33, straight losses? If you have, stop reading now. Either you’re not following a process of any kind, or trading isn’t for you. 

Set the math aside and stop thinking about losses for a second. Here are three basic steps to follow to avoid blowing out your account:

1. 5% Rule: Never risk more than 5% of your account with every trade.
2. Momentum: Keep trading so that your winners will cover your losses. 
3. Follow the Math: Trust the Anti-Blowout math and follow the sequences that the market reveals. 

Ask Joe Carter about pitches down the middle of the plate – oh, say around October of 1993 when he was playing for the Blue Jays. He’ll share a moment when Mitch ‘wild thing’ Williams tried to overpower him with a pitch right down the middle of the plate. It wasn’t quite a tape measure job, but it handed the Jays the World Series with one swing. 

The institutions don’t have to be the only ones making money in the S&P. Daily profits are there for the taking for everyone. 

Watch for predictive sequences by monitoring outside markets. Find an indicator that will simultaneously scan the thousands of stocks outside the S&P 500 for you – giving clear indications for buy and sell entries. 

Stalk the off-hours and follow the anti-blowout math to keep your account intact and your income generator humming. 

Walk back to the dugout with a standing ovation and a full account. Not a cold shower and dreams of what could have been. 

The S&P is yours for the taking. Make trading fun again and start bringing home daily profits. 

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