Basic Trading Theory / S&P 500 Index

lenonmc21 (68)in Project HOPE • 3 years ago (edited)

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Following this section that I have called the "Basic Theory of Trading-Indexes", I want to continue instructing the community in this type of assets so famous and that throughout history have made a lot of money to the Traders, of course, have also made lose, but this is one of the assets that I really like to operate, because it is very reliable and takes very good trends that can be exploited and win, as long as we know what we are doing of course.

In that sense, the reason why I do this section, is due to the little knowledge that retail or novice traders have about the large number of assets that exist. Many operate in the markets without really knowing what that asset is, what it is composed of and although they do not believe it, it is very important to know what we are going to work and to know what intrinsic risks they have, in this way we can determine if one asset or another can suit the capital that we have.

Without further detours, I will start with the explanation...

`What is the S&P 500 Index?`

Continuing the series on the basic theory of trading, focusing this time on the indexes, this time I will talk about the S&P 500 index. Previously I wrote about the Dow Jones index, for those who could not see this publication, you can access it by clicking HERE.

It is a stock market index, basically a basket containing the 500 selected U.S. stock companies with the largest capitalization, responding under the name Standard & Poor's 500.The S&P 500 is the second asset-based index in the world that most investors follow, the first of which I mentioned in the first post of this series, this is of course the Dow Jones. The S&P 500 is the second asset-based index in the world that most investors follow, the first of which I mentioned in the first post of this series, this is of course the Dow Jones.

`Where does the index value come from?`

The value of the index reflects the total capitalization of the companies included in it, among the most important that compose it are: Apple, Microsoft, Amazon, Facebook, ExxonMobil, Johnson & Johnson, Berkshire Hathaway, JPMorgan Chase and Alphabet.

Many investors use the price/earnings ratio (P/E) to determine whether a stock is overvalued or undervalued. The S&P 500 index allows similar trading for the entire market, as it covers most of the market, even, Warren Buffett himself, owner of Berkshire Hathaway, recommends investing in the S&P 500, where he instructed his wife, to put 10% of the funds in short term government bonds and 90% in the S&P 500 index fund after his death.

`Conclusion`

These indexes are widely followed by most Traders and investors around the world, in such sense, our investment portfolio should be as diversified as possible to take the least risk and protect our funds, which means that, we should not only trade currencies or cryptocurrencies, these indexes have very good trends that we all can take advantage of to make money. Diversify your investment and do not put all your money in one place.