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
- Dow Jones Companies in DJI30 Index
- Investing in the Dow Jones Price with CFDs
- Trading Styles for the Dow Jones Index
- 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
- Dow Jones Index - Day Trading Strategy
- Investing in the Dow Jones Final Thoughts
- FAQs on the Dow Jones Index
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 weighs 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 and McDonald's.
Dow Jones Companies in DJI30 Index
Which companies are in the Dow Jones Index? Currently, the companies that make up the DJIA are:
- American Express
- Boeing Co
- Cisco Systems
- Chevron Corp
- Goldman Sachs Group
- Home Depot
- Honeywell International
- International Business Machines
- Johnson & Johnson
- JPMorgan Chase
- Merck & Co
- Procter & Gamble
- Travelers Companies
- UnitedHealth Group
- Verizon Communications
- Walgreens Boots Alliance
- Walt Disney
- Dow Inc
Source: CNBC, 13 December 2023
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
Dow Jones CFDs allow you to trade long and short, potentially profiting from rising and falling prices in the index. To trade DJI30 CFDs with Admirals you just have to follow these steps:
- Log in with your Admirals account, either through MetaTrader 4, MetaTrader 5, WebTrader or the mobile app.
- In the tab 'Market Watch' click the right mouse button on the word 'Symbols'
- Write the index symbol, in this case, DJI30.
- Then double click on 'DJI30'.
- Once the dialogue box is open, right-click and choose 'Chart Window'.
- When the graph has appeared you can choose the number of lots.
- Finally, click on 'Buy or Sell' with the shortcut 'Trade with one click'.
Trading Styles for the Dow Jones Index
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.
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.
Investing in Dow Jones - Technical Indicators
Traders have many different technical indicators. We have chosen the two that we consider to be 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 around 1.30 pm GMT, 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
Correlation of DJIA and other instruments
The image shows the correlation between the DJIA and other major markets. In the preceding 50 days it turned out that the DJIA CFD was highly correlated with:
- SP500 with a score of +89
- DAX 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.
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.
Sell signal: Breakdown of the lower support Fractal by price and with the alligator waking up or in trend.
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.
FAQs on the Dow Jones Index
How do you trade Dow Jones?
To trade the Dow Jones index simply open your broker's trading platform, go to the Dow Jones CFD, sometimes known as WallStreet or DJI30 instrument and fill out the trading ticket to buy or sell the index. You must have a proper trading plan that is grounded in risk management to trade the market.
How do I trade the Dow Jones from the UK?
The Dow Jones is an index that can't be traded directly. However, many brokers will offer a CFD of the index which allows you to speculate on rising and falling prices. Alternatively, there are ETFs (exchange traded funds) that track the performance of the Dow 30 which can also be traded.
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 websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals ”) Before making any investment decisions please pay close attention to the following:
- 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.
- Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
- With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
- The Analysis is prepared by an independent analyst, Jitanchandra Solanki, Freelance Contributor, (hereinafter “Author”) based on their personal estimations.
- 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, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
- 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 Admirals 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.
- 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.