What is the Dow Jones Index? - Dow Jones Investing Strategies
What is the Dow Jones index? The Dow Jones 30 index (DJI30) is one of the main indices on Wall Street, along with the S&P 500 and the Nasdaq 100. Learn all about the DJI30, how to trade it and how to access the most competitive fees when doing so. ⬇️
Table of Contents
- What is the Dow Jones?
- Why Trade the DJI30 Index with Admirals? Competitive Spreads!
- Dow Jones Components for DJI30
- Investing in the Dow Jones Price with CFDs
- Trading Styles for the Dow Jones Share Price
- Dow Jones Investment Strategy - Example
- Investing in Dow Jones - Technical Indicators
- Investing in the Dow Jones - Best Times to Trade
- Dow Jones Forecast Using the News
- Correlation of DJIA and other instruments
- Investing in Dow Jones Index Volatility
- Dow Jones Historical Data - Long Term Price Trend
- Dow Jones Index - Day Trading Strategy
- Investing in the Dow Jones Index - CFD vs Futures
- Dow Jones - Buy Stocks
- Investing in the Dow Jones Index - Why Choose Admirals?
- Dow Jones Investing - Trading Platforms
- Investing in the Dow Jones Final Thoughts
- Other articles that may interest you:
- About Admirals
What is the Dow Jones?
Created at the end of the 19th century by Charles Dow, the Dow Jones Industrial Average (Dow Jones Industrial Index or DJIA index) is one of the most traded indices on the US stock market, along with the Nasdaq, the S&P500 and the Russell2000 (index of small-cap companies). Given the longevity of the DJIA, it can be said that it not only reflects the price of the country's large industrial companies but also the evolution of the US economy over the last century.
✍ Originally it was made up of 12 stocks but little by little it added companies until at the end of the 1920s it added up to 30, configuring the DJIA that we know today. Of the dozen that began trading with the birth of the index, none remain after General Electric's departure in the summer of 2018.
The Dow Jones Industrial, commonly known as Dow Jones 30 or DJI30, is a benchmark of the US financial market. Like the Nikkei 225, the DJI30 weights the price of its component stocks, which means that companies with the highest-priced stocks have the most weight in the index, regardless of their real value in the economy.
Be that as it may, the truth is that the DJIA is a clear thermometer for the health of the US economy:
- If the US economy grows ➡ The DJI30 rises
- If, on the contrary, the US goes through a crisis ➡ The DJI30 falls.
Among the companies that make up the current Dow Jones are Coca Cola, Walt Disney, Goldman Sachs or McDonald's.
Why Trade the DJI30 Index with Admirals? Competitive Spreads!
The spread is the difference between the buy price and sell price of an instrument. Commonly referred to as the bid-ask spread it is the most common fee when trading.
The bid-ask spread is influenced by a variety of factors such as the number of market participants trading at these price levels and the volatility of the market. Quite often, your broker will add a bit more to it as part of their fees.
You can see why choosing the right broker is critical when trading indices!
Did you know that Admirals provides competitive conditions to trade indices like the DJI30 index?
You can see this for yourself in the image below showing a comparison of fees for different brokers when trading the DJI30 index.
DJI30 Index Trading Cost Comparison
A comparison and collection of advertised spread and commission costs of different brokers trading the DAX40 and DJI30 indices, 22 November 2021.
From the comparison above, you can see Admirals provides one of the most competitive offerings to trade indices. This means that more of your potential profits will stay with you!
With an Admirals trading account, not only can you enjoy these low fees, but you can also access these additional features:
✔️ 24/5 trading of the world’s leading indices
✔️ High-speed market execution with zero requotes
✔️ Trade from 0.1 lot per contract; great for small accounts
✔️ Trade using leverage so you can control a large position with a small deposit, which will amplify profits AND losses
✔️ Trade long and short and potentially profit from rising and falling markets
✔️ No dealing desk execution
Dow Jones Components for DJI30
Who is in the Dow Jones? Currently, the companies that make up the DJIA are:
- Amgen Inc
- Apple Inc
- Boeing Co
- Caterpillar Inc
- Cisco Systems Inc
- Chevron Corp
- Goldman Sachs Group Inc
- Home Depot Inc
- Honeywell International Inc
- International Business Machines Corp
- Intel Corp
- Johnson & Johnson
- Coca-Cola Co
- JPMorgan Chase & Co
- McDonald’s Corp
- 3M Co
- Merck & Co Inc
- Microsoft Corp
- Nike Inc
- Procter & Gamble Co
- Travelers Companies Inc
- UnitedHealth Group Inc
- Salesforce.Com Inc
- Verizon Communications Inc
- Visa Inc
- Walgreens Boots Alliance Inc
- Walmart Inc
- Walt Disney Co
- Dow Inc
Source: CNBC, 25 November 2021
The composition of the DJIA changed on August 31 as a result of Apple's share split in a 4 to 1 ratio, a movement that significantly reduced the weight of the technology sector in the weight of the index.
From then on, Salesforce.com, Amgen and Honeywell were added to the index, replacing Exxon Mobil, Pfizer and Raytheon Technologies.
This is the third time in this century that the DJIA has transformed by suddenly switching to three of its components. The first time was in 2004 when Pfizer, Verizon and American International Group entered. The second was in 2013, with the inclusion of Goldman Sachs, Visa and Nike in the index.
Investing in the Dow Jones Price with CFDs
To buy DJI30 CFDs with Admirals you just have to follow these steps:
1️⃣ Log in with your Admirals account, either through MetaTrader 4, MetaTrader 5, WebTrader or the mobile app.
2️⃣ In the tab 'Market Watch' click the right mouse button on the word 'Symbols'
3️⃣ Write the index symbol, in this case, DJI30.
4️⃣ Then double click on 'DJI30'.
5️⃣ Once the dialogue box is open, right-click and choose 'Chart Window'.
6️⃣ When the graph has appeared you can choose the number of lots.
7️⃣ Finally, click on 'Buy' with the shortcut 'Trade with one click'.
To sell DJI30 CFDs the process is the same but in the last step, instead of buying, click on 'Sell'.
Trading Styles for the Dow Jones Share Price
We have different options at our disposal to trade CFDs on the Dow according to our trading style. Here are some of them:
- Very short-term trading: Scalping
- Short term: Day trading
- Medium-term: swing trading
Scalping and Day trading
Both scalping and day trading allows us to take advantage of the price movements that develop throughout the trading session in the US market. For traders who like to obtain immediate and fast results, scalping and day trading allow trading in very short periods of time, within the same day and before the session closes. Of course, it requires being in front of the screen without losing sight of it while we operate.
To limit negative results as much as possible, it is recommended that, whatever our trading style, we maintain discipline at all times and try to learn from our mistakes without losing our temper. Only then can we improve and gain experience.
For those who prefer to operate in a more relaxed and calm way and for those who have little time to dedicate to trading, one option to consider is swing trading. The swing trader does not need to be in front of the screen continuously since the idea is to find opportunities in longer periods of time, such as a week.
If you want to practice different strategies without putting your capital at risk, you can do so with a demo account. Click on the following banner to open a FREE demo account:
Dow Jones Investment Strategy - Example
The trader buys a lot at 27,200 points and closes at 27,250 points. Result: 50 * 0.90 € = 45 € profit.
Sell a lot at 27,100 points closing at 27,000. Result: 100 * 0.90 € = 90 € profit.
It is important to emphasize in this regard the value of a point based on the number of lots traded on the DJI30 CFD chart:
- 0.1 lot equals approximately € 0.09 per point
- 1 lot equals approximately € 0.90 per point
- 10 lots are equivalent to about € 9 per point
However, when in doubt, you can use our trading calculator to run simulations on the DJI30 CFD. This tool allows you to choose the leverage, the number of lots and the price of the entry and exit position, so it is very useful for helping make the best decision.
Source: Admirals Trading Calculator
Investing in Dow Jones - Technical Indicators
Traders have many different technical indicators. We have chosen the two that we consider being the most optimal when trading CFDs on Dow Jones.
The Alligator indicator makes it easy to find the potential direction of DJI30 CFDs.
- The trend will be bearish if the Alligator moving averages are in the following configuration Green <Red <Blue
- The trend will be bullish if the Alligator moving averages are in the Green> Red> Blue configuration
Bill Williams fractal
Bill Williams' Fractal Indicator identifies visible ups and downs on the DJI30 CFD trading platform. This technical indicator is often used to take a position on the breakout of these peaks and troughs based on the current trend of the index.
Investing in the Dow Jones - Best Times to Trade
➢ When the US session begins, the Asian markets have already been closed for about two hours but in Europe, it is still daylight and the European trading sessions are still open. It is at this moment that trading volumes are most important.
➢ Once activity in the US markets has ended, there is a decrease in trading around 10 pm, until the Asian markets open. It’s important to know that the DJI30 CFD index is available 24 hours from Monday to Friday, which means greater trading opportunities.
➢ Added to this is the fact that the US economic calendar is very rich in news, which continues to influence the Dow Jones. This allows us to select the times we spend trading if we choose to do so during posting hours.
Dow Jones Forecast Using the News
News from the companies that make up the DJIA has a decisive influence on the price of the index, especially those of American Express, Apple, Boeing, Caterpillar and Chevron. Some call this ‘Dow Jones news’.
Likewise, the following factors in the US also impact the Dow Jones:
- Fed interest rates
- Fed appearances
- Unemployment rate
- Balance of trade
- NFP (Non-Farm Payrolls)
- Inflation rates
- GDP growth rate
- Retail sales
- Durable and industrial goods orders
- Business sentiment
- Consumer confidence
Holidays in the USA
Any trader, beginner or professional, should know the holidays in the US during which the market is closed (2021 calendar).
- January 1 New Year
- January 18 - Martin Luther King Day
- February 15 - Presidents' Day
- April 2 - Good Friday
- May 31 - Memorial Day
- July 5 - Observance of independence Day, July 4, which occurs on Sunday
- September 6 - Labor Day
- November 25 - Thanksgiving Day
- December 24 - Observance of Christmas Day, which occurs on Saturday
Correlation of DJIA and other instruments
Source: Admirals MetaTrader 5 Supreme Edition.
The image shows the correlation between the DJIA and other major markets as of September 9, 2020. In the preceding 50 days it turned out that the DJIA CFD was highly correlated with:
- SP500 with a score of +89
- DAX30 with a score of +97
On the other hand, a very slight correlation is observed with respect to the EURUSD with a score of only +32.
In short, the strong correlation present between the different stock indices can be verified. This correlation analysis is one of the ways to analyze and trade the Dow Jones to see the probabilities and capture the best periods of volatility for this index.
Investing in Dow Jones Index Volatility
The Dow Jones CFD has increased its volatility by an average of 445 points per day since the start of 2020. This volatility is most marked, as you would expect, during US trading hours.
This is why many traders wait for the start of the US session to take advantage of the increased volatility.
If you want more information about all these concepts, you can sign up for free for our Zero to Hero trader course. Just click the following banner:
Dow Jones Historical Data - Long Term Price Trend
The long-term uptrend of the Dow Jones 30 index can be seen in the monthly price chart below. The only two most significant bearish trends were prior to the 2008 financial recession and the 2020 pandemic.
In late 2021, the index kept on surging to record highs, highlighting the rebound in the economy after the pandemic period. As you can see in the graph above, the Dow Jones began a marked upward path from March 2009 until March 2020, at which time the coronavirus spread throughout the world until it became a pandemic, forcing the majority of governments to shut down their economies.
Despite the collapse that the markets suffered at that time, the Dow Jones managed to turn the situation around and in September 2020 it was close to recovering almost everything it had lost from the pandemic.
Source: Admirals MetaTrader 5, DJI30, Monthly - Data range: from 1 May 2005 to 25 Nov 2021, performed on 25 Nov 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
Dow Jones Index - Day Trading Strategy
Next, we will look at a simple strategy that can be used to perform intraday trading visually and quickly. Let's see what the parameters of this strategy are:
Time Frame: 5 Minute Charts
Bill Williams Indicators:
- Alligator: We will use this indicator with its default settings to determine the trend
- Fractal Indicator: We will use this indicator to look for signals in the Dow Jones 30
Trading hours: From the opening of the session in the United States, after 3:30 p.m.
Buy signal: Breaking of the upper resistance fractal by the price and with the alligator waking up or in trend. Let’s look at the Dow Jones live chart below:
Source: MetaTrader 5 Supreme Edition by Admirals. 5-minute chart of the DJI30 from September 9, 2020, at 5:00 p.m.
Sell signal: Breakdown of the lower support Fractal by price and with the alligator waking up or in trend. Let’s look at the Dow Jones chart below:
Source: MetaTrader 5 Supreme Edition by Admirals . 5-minute chart of the DJI30 on September 10, 2020, at 5.30 p.m.
Investing in the Dow Jones Index - CFD vs Futures
In addition to CFDs, other instruments allow us to take advantage of the up and down movements of the Dow Jones: futures contracts. Let's see what are the main characteristics of these:
Dow Jones Future Live Index
Dow Jones index futures in real-time are more expensive than CFDs. These are some differences between the two:
❌ Futures involve entry and exit fees.
❌ A higher margin is required in the case of futures, which means owning more initial capital.
❌ Trading futures is reserved for experienced traders with good risk management.
On the other hand, futures and CFDs are traded in the same way, with similar processes of graphical and trading analysis.
As we have seen, trading the DJI30 with CFDs is much cheaper than with futures. This is so because CFDs allow you to speculate on a large number of different and varied products, being able to use leverage. That is, we can trade a higher amount than if we use futures.
Based on this, we can cite the following advantages of CFDs:
✔️ The CFD market is more affordable for small trading accounts.
✔️ The typical spread is low.
✔️ Ability to operate with leverage.
✔️ The required margin is lower.
In short, the cost of CFDs is lower since it does not include commissions, only the spread is taken into account.
Dow Jones - Buy Stocks
If you are thinking of buying Dow Jones stocks, Admirals offers you two possibilities:
- Buy CFDs on stocks with the Trade.MT5 account.
- Buy shares directly with the Invest.MT5 account.
Stock market data and their respective CFDs are available in real time and free of charge for live accounts, while demo accounts have a delay of 15 minutes.
If you are new to the Stock CFD market, we recommend that you familiarize yourself with the key information documents for Stock CFDs and ETFs.
Investing in the Dow Jones Index - Why Choose Admirals?
Choosing Admirals as a broker has, among others, these advantages:
✴️ Regulated by the UK Financial Conduct Authority (FCA), Cyprus Securities and Exchange Commission (CySEC), Australian Securities and Investments Commission (ASIC), among other regulators.
✴️ Negative balance protection policy with client funds held in segregated accounts.
✴️ You can access our protection tool against volatility.
✴️ You can trade Mini lots, available on the CFD Index.
✴️ Trade from MetaTrader 4, MetaTrader 5 desktop, web and mobile. Supercharge MetaTrader with Supreme Edition plugin.
✴️ Trade long and short to potentially profit from rising and falling markets.
✴️ Trade the DJI30 Index CFD 24/5.
Which account to choose to trade with the DJIA?
How to trade the Dow Jones? You can trade the DJIA CFD on Admirals through the following trading accounts:
- Trade.MT4 on the MetaTrader 4 platform
- Zero.MT4 on the MT4 platform
- Trade.MT5 on the MetaTrader 5 trading platform
Dow Jones Investing - Trading Platforms
- MetaTrader 4 and 5 Supreme Edition on Windows and MAC
- MetaTrader 4 and 5 on iPhone and iPad tablets
- MetaTrader 4 and 5 for Android and tablets
- MetaTrader 4 and 5 Online WebTrader
The MetaTrader is one of the platforms most used by traders around the world to trade CFDs.
Admirals offers free demo accounts with the realistic conditions of the CFD index markets, allowing you to test your strategies safely, without risking your money.
Investing in the Dow Jones Final Thoughts
Trading the Dow Jones stock index, one of the major stock indices in the world's largest economy, allows you to take advantage of many market opportunities. As you may have seen throughout this article, the DJIA is accessible in several ways:
- Through futures (for professionals with large startup capital)
- With CFDs, accessible to small accounts
- Directly with index stocks
There are multiple possibilities suitable for each type of trader. All this without mentioning that you can use scalping and day trading strategies. For those who prefer long-term investments or have a full-time job, swing trading is a perfect fit for the DJIA.
If you want to start trading with the DJIA or any other index using CFDs, just click on the following banner and open a live trading account:
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