I’ve been reading about stock market investing and keep coming across the idea that major indices like the S&P 500 naturally trend upward over long periods of time. Some people say this is because of economic growth, inflation, and companies constantly evolving and improving.
But I’m wondering if this is actually true or just something people say to justify buy-and-hold strategies. When I look at charts going back decades, it does seem like there’s an overall upward trend despite crashes and bear markets along the way.
Is there something fundamentally different about trading indices compared to individual stocks or forex pairs? Does this supposed bullish bias mean that going long on indices is statistically more favorable than going short over time?
I’m trying to understand if this should influence my trading approach or if it’s more of a long-term investment concept that doesn’t really apply to shorter-term trading strategies.
Mostly true but crashes can last years sometimes.
The growth of companies impacts indices like the S&P 500. If you short, you’re against a long-term upwards trend.
Index tracking means constant rotation. Failing companies get dropped, successful ones replace them. This creates artificial upward pressure you won’t find in individual stocks or currency pairs. The bias is real but priced into everything. Long index positions have higher swap rates. Short positions get better overnight rates. Market makers know the stats. For day or swing trading, it doesn’t matter much. Monthly or yearly holds - that’s where this bias shows up. But you’re paying higher costs to benefit from it.
S&P 500 has indeed shown strong performance over the years. It’s been positive 75% of the time since 1950, and 95% for 10-year stretches.
This is mainly because weaker companies get removed from the index, making room for stronger ones. So, you’re essentially holding the best 500 US companies.
For forex, the short-term trading doesn’t change much. I trade SPX futures based on technicals as well. The long-term bullish bias matters mainly for longer holds.
However, keep in mind that overnight funding costs on index CFDs can really hurt long positions. Brokers factor in this bias, and trading costs can cut into your profits.
If you’re looking at longer trades, that bullish trend is something to consider. For daily trades, just follow your system and ignore the long-term trends.
Yeah, the bias is real but it breaks down during flat periods. Look at the 2000s with almost ten years of zero growth.
I focus on price action and momentum rather than banking on long-term trends. Markets can stay sideways or bearish way longer than people think.
This bias gets traders stuck holding losing longs, waiting for a recovery that might not come.