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With the Dow Jones 30 Index at record highs, is 30,000 next?

July 16, 2019 09:30

The Dow Jones Industrial Average Index (DJI) was launched in 1929 by Charles Dow and is one of the most traded indices on the US stock market. At the beginning of the month, it reached a record high and traders are asking the question if it can keep surging higher to the next big round number of 30,000, which is 25% higher from where the market opened at the beginning of the year.

Trading the DJI 30 Index CFD

In this article, we explain what the Dow Jones Index is, what could be next for it and the possible trading opportunities around - what has been - a historic secular bull market trend since the 2008 financial crisis. Let's get started!

What is the DJI 30?

The Dow Jones 30 Index (DJI 30) has several names including the Dow Jones Industrial Average, the Dow Jones 30 and most of the time, just the 'Dow'. Created in the 19th century by Charles Dow, the founder of the Wall Street Journal, the index is a price-weighted average of 30 publicly traded companies in the United States.

The 30 companies can differ each year as they are chosen from a selection committee from the S&P Dow Jones Indices company. Currently, it includes the likes of American Express, Apple, Boeing, Caterpillar, Exxon Mobil, Goldman Sachs, McDonald's, Microsoft, Nike, Pfirzer, WalMart, Walt-Disney and more.

As the DJI index represents a basket of different companies across different sectors it is often used as a bell-weather to the health of the US economy. And, with the index trading at record highs it has created some very interesting long-term and short-term trading opportunities.

How to Trade the DJI 30

With Admiral Markets you are able to speculate on the Dow Jones 30 index price by using a product called CFDs, or Contracts for Difference. Essentially, this enables traders to go long and short on the market.

Below is the long-term price chart of the Dow Jones Index (DJI 30):

Source: Admiral Markets MT5 Supreme Edition, DJI30, Monthly - Data range: from May 1, 2005, to July 15, 2019, accessed on July 15, 2019, at 2:15 pm BST. - Please note: Past performance is not a reliable indicator of future results.

It is clear to see some of the most defining moments in the history of the Dow Jones 30 Index. For example, the financial crash of 2008 saw a significant decline in the index. However, since the end of the financial recession in 2009 the DJI 30 has soared and continues to break to new record highs.

However, over the past few years, it is also clear to see the volatile and sideways range of the index, as shown by the yellow box below:

Source: Admiral Markets MT5 Supreme Edition, DJI30, Monthly - Data range: from May 1, 2005, to July 15, 2019, accessed on July 15, 2019, at 2:15 pm BST. - Please note: Past performance is not a reliable indicator of future results.

During the time highlighted in the yellow box above, the market was digesting a raft of different news announcements such as changing US interest rate policy, US-China trade tariff war, US-EU trade tariff disputes, Brexit, European elections, Syria and Iranian tensions and much more. While the financial media discuss such events an important principle to understand is that the stock market represents a basket of companies. The job of a public company is to make more profits using shareholder capital. If done correctly the share price rises.

Now that the Dow Jones 30 Index is breaking out of this period of volatility, traders will be eyeing the next major level of resistance which is the big round number of 30,000. This also happens to sit just below the major 161.8 Fibonacci Extension level from the recent downward cycle, as shown below:

Source: Admiral Markets MT5 Supreme Edition, DJI30, Monthly - Data range: from May 1, 2005, to July 15, 2019, accessed on July 15, 2019, at 2:15 pm BST. - Please note: Past performance is not a reliable indicator of future results.

Shorter-term traders may view the lower timeframes to identify possible trading opportunities in line with the higher timeframe trend. For example, the Daily chart is a popular timeframe for swing traders who trade in between short-term and long-term.

When viewing the daily chart, moving averages can be useful in helping to identify the trend of the market. Below is the daily price chart of the Dow Jones 30 Index with a blue 10-day moving average line.

Source: Admiral Markets MT5 Supreme Edition, DJI30, Daily - Data range: from March 5, 2019, to July 15, 2019, accessed on July 15, 2019, at 2:29 pm BST. - Please note: Past performance is not a reliable indicator of future results.

Jumping from the monthly to daily chart may be confusing for the beginner trader. The important thing to remember is that the market cycles. The monthly just only shows one bar of the month, from where it opened to where it closed and the high and low of the month. Within this monthly bar, there are around 25 days worth of trading which can be viewed on the daily chart to see what happens each Monday, Tuesday, Wednesday and so on.

Traders will often attempt to line up the lower timeframe to the higher timeframe trend as that typically indicates the strongest part of the trend. It's clear to see in the above chart that buyers do control the market when the price is above the daily 10-period moving average.

However, traders will take it one step further and use price action patterns to help identify possible trading opportunities. For example, a popular price action pattern is the bullish pin bar reversal. This is where the bar makes a new daily low and then rallies all the way back up to close in the upper half of the bar. It represents a rejection of the downside and a possible move to the upside. On 9 July, the Dow Jones 30 Index formed a bullish pin bar reversal above the 10-day moving average as shown by the yellow box below:

Source: Admiral Markets MT5 Supreme Edition, DJI30, Daily - Data range: from May 9, 2019, to July 15, 2019, accessed on July 15, 2019, at 2:36 pm BST. - Please note: Past performance is not a reliable indicator of future results.

Traders could have entered a buy stop order one point above the high of this bar, resulting in an entry price of 26,808, with a stop loss one point below the low of this bar, resulting in a stop loss price of 26,657. Trading a one lot position size (volume) would mean if the entry price was triggered and then hit the stop loss the loss on the trade would be approximately $151.

In your MetaTrader trading platform, you can open a new trading ticket by pressing F9 or right clicking on the chart and selecting new order. The order ticket may have looked similar to this:

Source: Admiral Markets MT5 Supreme Edition, DJI30, Daily - Data range: from April 18, 2019, to July 15, 2019, accessed on July 15, 2019, at 2:41 pm BST. - Please note: Past performance is not a reliable indicator of future results.

On the close of Friday 12 July, the trade would still be live as the stop loss price had not yet been reached. This would have left an open profit of approximately $264.

With MetaTrader 5 you can trade on multiple asset classes, as well as access superior charting capabilities, free real-time market data & analysis, the best trading widgets available, and much more! To download MetaTrader 5 now, click the banner below and receive it for FREE!

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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2.Any investment decision is made by each client alone whereas Admiral Markets AS (Admiral Markets) shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.

3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.

4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter "Author") based on personal estimations.

5.Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.

6.Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.

7.Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.


Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.