Buying and Selling The Market

Today buying and selling the "market" is as easy as buying and selling individual stocks. The idea of trading the market, however, began years ago with the creation of mutual funds that bought and sold companies in the same proportion as in the S&P500. These funds were easy to find because most of them had "500" in their names. Later on the funds evolved to the point that you could buy any subset of the overall market by buying funds that were "indexed" to a particular subset. Today there are hundreds of indexed funds to satisfy almost any individual's weird investment strategy.

The next evolution of this idea occurred with the creation of Exchange Traded Funds (ETF). These were unique in the fact that investors could trade these funds all throughout the day rather than only at the closing price of the day. This was a huge improvement for market traders. One of the first ETFs created was the "SPY" which specifically tracked the S&P500 index. The SPY has been quite successful over the years but it's also gotten quite expensive. Fortunately for all of us traders other brokerage houses have created similar ETFs and they're readily available for almost any trader. 

I use one of those brokerage funds to trade the overall market. My strategy is quite simple. I buy the ETF when I think the market is about to go up and I sell the ETF when I think it's about to go down. In this strategy I never short the ETF. I simply sell the fund and put the money in a money market account until the ETF and the market bottoms. At that point I simply once again buy the ETF and ride the market up.

This is strictly a technical trading strategy. There's no fundamental aspect about the trades. It takes a general understanding of technical analysis and the use of momentum indicators to execute the trades, so I wouldn't expect those investors that rely only on fundamental analysis to execute a trade like this. I do this to create income. And like dividends and option income, I use the income from these trades to buy more shares of companies that pay a continuous and growing dividend stream. 

That's because the basis for all of my investing is the idea of accumulating a growing stream of dividend income, which is an idea that would not be unexpected from a Dividend Growth Investor like me.