How to Make Money Trading the S&P 500

There is no easy way to make money trading the stock market. Inexperienced traders or unaccountable beginners will get eaten up by the competition. Remember: it is a zero sum game. This means that for every dollar you make in a trade, there is someone just like you on the losing end of the very same trade. Trading successfully, especially day trading, means being better than your competition. One of the best vehicles for trading is the ES Mini, which is a futures contract tied to the movements of the S&P 500, because it is highly liquid and actively traded.

Understand What You Are Trading

The most important aspect of trading any asset class is to understand the asset and what causes its price to move. The S&P 500 is a broad based index of 500 companies that reflect the overall business health of the economy. Everything being equal, good economic news will make it move higher, while poor news will bring it lower. For every dollar move in the S&P futures, which is directly tied to the S&P 500 index, the ES mini will move $50 per contract.

It's important to identify your strategy as a trader. At the most fundamental level this means whether you take your trading clues based on fundamental analysis or technical analysis or some combination of the two. Fundamental analysis looks at the financial numbers of a company or a group of companies, as is the case with the S&P 500, and tries to ascertain whether the asset is overvalued or undervalued based on its growth rate. Technical analysis looks into more esoteric features of an asset, based largely on mathematical calculations.

Fundamental analysis looks primarily at valuation in terms of a price to earnings ration and at year-over-year revenue growth. Whether you are trading the S&P 500 or individual stocks, the premise remains the same. Historically, a PE ratio of 15 or less for the S&P 500 is considered relatively inexpensive. However, a low PE ratio means little if there is not any growth behind a company. For this reason, over the last few years, in large part due to Jim Cramer's recognition of this ratio's importance, the PEG ratio has become a key fundamental statistic for traders and investors. It takes the PE ratio and divides it by the growth rate, thereby incorporating both a company's valuation and growth potential. A PEG of less than one is considered inexpensive, while anything over two is thought to be pricey.

Technical analysis is more commonly used by day traders and those looking to enter and exit a trade quickly. Its focus is on an asset's momentum and price action in order to determine entry and exit points in for a trade. Certain technical indicators such as the Relative Strength Index (RSI) and various Stochastics can be used to determine whether a market is oversold or undersold. An oversold market portents a quick move higher, while an undersold market portents a quick move lower. Moving averages are another technical indicator used to determine the overall trend of a market. A upward slopping 50, 100, or 200 day moving average suggests an upward trending market. Remember: the trend is your friend.

When actively trading the S&P 500, perhaps the most important consideration is to gauge market psychology. Two overriding emotions tend to dictate the actions of traders and investors. They are fear and greed. In times when fear is dominating the market, one is best served by positioning himself or herself for a market decline. Conversely, when greed pervades, prices will rise and a bullish tendency is most likely to be profitable. However, take heed: in times of psychological market agitation, whether because of excessive greed or excessive fear, markets have a tendency to snap back violently in the opposite direction of the trend, making it extremely difficult to predict price movement.


  • Be patient and start trading slowly.


  • Make sure that whenever you trade you have a stop loss. This is the price at which you will exit a trade and helps you define the risk you are willing to take.