ETF

SPY ETF

What is the Spy ETF?

The SPDR S&P 500 ETF (SPY) is an Exchange-traded fund. The SPY ETF seeks mirror the performance of the S & P 500 Index. The SPY ETF offers exposure to companies that are in the S & P 500 index. The Spy ETF does not seek to gain or lose money it seeks to perform just as the index that it tracks.

What is the S & P 500 Index?

The S&P 500 (Standard & Poor’s 500) Index is an index that is based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. Many people consider the S&P Index one of the best representations of the US stock market. Standard & Poor’s index began in 1957.

Can a trader trade SPY Options?

When trading options some things are just not worth it. Options have high volatility. A trader might be up 20% one second and down 50% the next when trading options. This can be fool’s gold. The main problem with some options is the difference in the bid/ask spread. If a stock or ETF does not have much volume usually the options bid/ask is so wide that just a purchase of that option would put the trader at more that 10% loss. When the trader goes to sell they would lose another 10% on that trade. A trader would have to make 21% to just break even. The SPY ETF has enough volume that the difference in the bid/ask make it ok to use to trade options.

Trend Following SPY

The SPY ETF is a good index to follow with your long-term trend following strategy. Historically the S&P index and the SPY ETF have performed well when used in a long-term trend following system.

SPY ETF

As you can see in the above chart the S&P 500 (SPY) ETF is a very good index to use when trend following long-term. So the SPY ETF is a good ETF to use in a trend following model. With trend following it really does not matter if a stock or ETF is going up or down it just needs to move in one direction for an extended period of time.

 

Spy Trading System: Time Frame

When you are thinking about trading the SPY ETF you need to have a SPY trading system. In a SPY Trading System the time frame can vary. Some people have a Spy trading system that is a day trading system. Others use daily prices in their Spy Trading System. Longer term traders will use weekly price values in their SPY trading system. It is best to choose a system that will fit your lifestyle. If you don’t have time to sit in front of a computer screen all day then you may want a long-term SPY Trading System.  If you would rather trade constantly then you might want to your Spy Trading System to be a day trading system.

Spy Trading System: Variables

The key with any system is that you follow the system.  Don’t change the trades just because the market goes the opposite of your trade. Your Spy Trading system should include risk, signals, stops, and trailing stops. The main variable that you need is risk and money management in your Spy trading system.  Without risk management, you will risk account ruin.

Spy Trading System: Back Test

The one thing to keep in mind is when developing your SPY Trading system is back testing. You want to make sure that you back test your system to gain confidence in your system. The way we like to back test our systems is by historical price data. You can use a computer program to test your system. You can also load the prices manually into your computer. Don’t just look at the overall percent gain. We like to go day by day. This puts us in the mindset of what it will feel like to trade the system. If you have a 20% drawdown in a month then you will not be surprised if you have seen that in your back test.

 

To develop a good Spy Trading system follow the advice given here and you will be well on your way to developing a system that makes you money.

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