The Big Picture on Indices

The Big Picture on Indices

Between March 2009 and December 2014, the average annual return (counting dividends) on the S&P 500 was more than 22 percent. That’s one of the highest numbers that it’s ever been for that long of a period. In fact, it’s more than double what the average return has been on that index for quite some time. The same index has not been nearly as impressive over the last year and a half, though. If you factor in dividends over the last 18 months, the S&P goes from moving sideways to going just over breakeven, returning about 3.1 percent annually over that period of time. 3.1 percent is far less than the 22 percent that traders had grown used to, and it’s created some tension in the markets as investors and traders start moving their capital from the broader market in hopes of finding that next great “breakout” stock or other asset.

This creates a lot of potential, but it also acts as a good warning. Tying money up in a stock long term, hoping that it skyrockets in price is very risky. There can be tremendous potential, but it is far higher risk than anything else. There are safer alternatives, and believe it or not, short term binary options trading can be one of them, depending on how you approach it. Think about it this way: when you are investing in a stock, to make it worthwhile, a few thousand dollars’ worth of the stock needs to be purchased at once. Once this is done, your growth is not going to be instantaneous. You need to hold the stock for a minimum of at least three days if you are not registered for day trading and have a well-funded margin account, and unless a miracle occurs, stocks hardly ever move more than 5 percent in a day. When they do, it is hardly ever predictable. Your money is likely to be tied up for at least a year or two if you are going to see any sort of worthwhile increase, and even then, it is rarely ever going to be more than 10 to 15 percent growth.

Instead of this, focusing on short term fluctuations and maximizing your return off of them, such as what you accomplish with zero-cost binary options trades, keeps your money working for you and growing at a faster rate.

In the past, markets have gone up about 83 percent of the time after a prolonged pause, according to research from Edward Jones. A pause, for all intents and purposes, is defined as when the major indices move sideways, not making any significant gains, but not losing anything, either. What’s even more encouraging about this research is that it shows that markets don’t just tend to go up after a pause, but they go way up. The average annualized gain was 18.1 percent for the year directly following a prolonged pause. For long term investors, that means that statistically speaking, right now is the time to start buying. For short term traders, and even day traders in the binary options market, it means that you should be looking at the companies that have the most amount of room to go up in stock price. Obviously, you should still be examining things on a micro, technical scale, depending on the length of your expiries and your trade outlook, but this concept will give you a broader view of what the market in general is most likely to do. It’s also a good framework for taking out long term call options on the major U.S. indices, primarily the S&P 500.

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